Taxman accused of holding out on pre-pack VAT numbers

HMRC headquarters

A leading insolvency practitioner has said that HM Revenue & Customs is exercising an option to withhold VAT numbers from some businesses going through pre-packaged administrations.

The move is a last-ditch measure to block the controversial process, which can often leave the taxman out of pocket.

James Money, restructuring and recovery services director at Smith & Williamson, said: ‘It’s not unusual for [HMRC] to say “this stinks”. They will withhold VAT numbers, which prevents the company from trading. It’s a natural reaction to HMRC feeling hard done-by.’

In a pre-pack administration, a buyer is lined up before the administration process begins. Some feel it is an easy way for company directors to just ditch debts, usually with HMRC, and start afresh.

‘If the business can be sold to competitors, fine, but sometimes the only people that want to buy the business back are the directors,’ Money said.

After the banks, HMRC is often the major creditor of a failing business and PAYE and NI payments are sidelined in favour of paying staff.

Pre-packs can involve selling on the company for a nominal fee to the executives, which HMRC sees as a thinly veiled attempt by the top brass to shed its debts. ‘If they think that companies have been taking the mickey, then they will say, “We’re not going to issue you a VAT number,” which makes it hard for them to trade,’ said Money.

Even in the case of a rival buyer being found, HMRC has still taken issue at companies going down the pre-pack route.

HMRC said it didn’t not recognise the situation described by Money: ‘We would not refuse to issue a VAT number where there is a statutory requirement for a legal entity to be registered for VAT.’