Taxman accused of holding out on pre-pack VAT numbers

hmrc headquarters

HMRC headquarters

A leading insolvency practitioner has said that
HM Revenue &
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 &
, 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.’

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