I have recently come across two limited companies (not connected) who had relied on their bookkeepers to complete VAT returns and make sure that the Pay As You Earn (“PAYE”) was paid on time.
In both cases, the bookkeepers seemed too scared to tell the stressed directors what arrears were building up. This meant that the directors were only now finding out the truth about their finances and coming to the realisation that they have had a false sense of making money (due to staying within an overdraft facility), when in fact the VAT and PAYE arrears are now so substantial that the business cannot be saved without some sort of formal insolvency restructuring.
In these cases it’s worth working out a realistic cash flow for the next 12 months and trying to agree a sensible payment plan with HM Revenue & Customs. In some cases, they will allow payments to be spread over 12 months if you can prove that the business can repay the arrears as well as provide proof that the bank won’t help by making a loan now.
However, the mistake here is to make the cash flow ‘fit’ and demonstrate the business as having the surplus to pay the arrears, when in fact it cannot. There really is no point in the directors kidding themselves and potentially carrying on making the situation worse and opening themselves up to wrongful trading.
Although business owners can often feel overwhelmed by their financial problems and debt, it is possible, with the right help, to save a business from insolvency.
At Kirks we have over 20 years experience dealing with insolvent businesses. If your business is facing financial problems and debt, contact us today. We can help.