Businesses that start up gain after they have collapsed are, in some cases, being met with demands for significant up-front VAT payments, it has been claimed.
Under the 2006 Enterprise Act, firms that go under can use what are called ‘pre-pack’ administration measures in order to restart the business.
However, it has been reported that HM Revenue and Customs (HMRC) has turned to a VAT law that allows the tax authorities to charge re-start firms a penalty fee as security against future VAT liabilities.
The sum is worked out according to the predicted future revenue that the revived business makes for itself and could be as much as six months of VAT.
Stephen Alamabritis, of the Federation of Small Businesses (FSB), described the move as running counter to the aims of the Enterprise Act, which are intended to provide owners with the motivation to get back into business again.
Mr Alamabritis argued that the penalties were endangering the number of firms looking to get back on their feet after falling victim to the recession.
The government, he said, should “allow businesses, where there is no proven fraud or criminal activity involved, to set up again in the normal way”.
In response, HMRC said that, although some 2,000 penalties had been raised over the last 18 months, the aim was not to stop firms from trading but “to protect risk to future revenue to the Exchequer and to encourage compliance”.
Revived businesses that are faced with a VAT security charge can appeal against the decision.
