If I cannot pay the VAT bill, what options are available to my company?

Question

My limited company has been trading for five years, but a recent random VAT inspection was a bolt our of the blue. A month after the inspection took place we were told we owe £15,000 in additional VAT. This is because our accountant calculated our returns incorrectly each month.

HMRC have been made aware of the accountant’s failings and have treated the debt ‘to pay plus penalty’ to allow us a bit of leeway. However, we are a seasonal business and this has come at the worst possible time.

We have no assets or money at this moment and my accountant is now advising me to let the company go into liquidation. He said HMRC will eventually wind it up. He says to ignore all correspondence and let the firm die, and that HMRC can’t chase me personally for the debt if the company is wound up? Is this true?

Answer

As a general rule, a director is not personally liable for the debts of a limited company. In fact, the exceptions to this rule are few and far between and in general are limited to instances of fraud. This is not to say that a delinquent director cannot be brought to book and ordered to contribute to a company’s assets if their conduct is below the requisite standards, but this is different to personal liability for a company’s debts.  

The good news is that it does not sound as if you are culpable, albeit a company director is responsible for the submission of accurate VAT returns; the fact you have instructed a professionally qualified accountant would provide strong mitigation and should be sufficiently compelling for you to avoid any criticism or possible action by a liquidator.

However, it may be better for you to take control of the situation and consult with a licensed insolvency practitioner with a view to placing the company into voluntary liquidation rather than waiting for it to be wound up by the court and the initial meeting will not cost you a penny.