Struggling with VAT Compliance

Q. Our business has been struggling with VAT compliance for a number of years. Admittedly, this has largely been down to us, particularly the misconduct of a former employee who was responsible for the reporting (they have been dismissed as a result) but we are keen to put things right and have employed the services of a local accountant who will be dealing with things for us going forwards. However, I have now received a letter from HMRC saying that they will be issuing a demand for security payment in respect of VAT liability. As I understand it, this will not be offset against future liabilities, and instead will be refunded after a period of good compliance. My issue is that this will not be easy to fund. Can I refuse on the grounds that the company has already appointed an agent, which will mean vastly improved compliance going forward?

A: HMRC does have the power to ask for the security in respect of certain taxes if it perceives there is a risk to the public revenue. Whatever you do, do not ignore a notice when it comes through – failure to pay it within the statutory time frame makes it a criminal offence to continue to trade. As you have clearly made a commitment to improving your compliance, it may be worth sending a copy of your engagement letter with the new accountant and asking for an internal review emphasising your commitment. Also stress that the employee responsible for the previous problems has been removed. There is no guarantee that this will remove the requirement for security, but you really have nothing to lose.



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