HMRC cracks down on VAT scams by ‘phoenix firms’
Mar 31 2009 by Tom Scotney, Birmingham Post
HM Revenue & Customs is getting wise to the increase in “phoenix company” VAT scams, a Midland financial expert has said.
Denis Holly, VAT director at accountants and business advisers Horwath Clark Whitehill, said HMRC was in some cases demanding financial assurances up front before allowing new firms to start trading.
The issue has emerged after a number of VAT tribunal rulings.
Mr Holly said: “It is not unusual for a company which is in debt to be wound up and then a new one set up to carry on a similar business without the burden of needing to pay its creditors.
“Often one of the outstanding creditors will be the VAT man. All too often he is the last person a struggling firm bothers to pay, being in effect viewed as an easy source of credit.
“In order that the new entity does meet its future potential VAT liabilities and does not default, as in the case of its predecessor company, HMRC can now issue a Security Notice. This asks for a guarantee from an approved financial institution of up to four months’ VAT. If the notice is not complied with, the new company cannot trade and will be subject to a penalty of up to £5,000 per transaction.”
He said there were a number of factors considered by HMRC before it took such a course. These included looking at the compliance history of associated businesses.
He added: “If any of these have a poor record and a business has started up similar in nature, from the same address and with the same principal people involved, HMRC will move quickly to avoid potential default. They will even issue a notice before the company has sent in its first return.
“So if you are thinking of winding up a company in difficulties and starting up one carrying on a similar trade, make sure you factor in the risk of HMRC requiring a guarantee because of a poor VAT compliance history of any associated businesses.”
Phoenix companies are hugely controversial because in the past, some directors have deliberately forced their companies into insolvency in order to buy back the assets at a reduced price while absolving their responsibility for the liabilities and leaving creditors in the lurch.
