Blick Rothenberg

HMRC should reduce VAT claim times for Carillion customers

18.01.2018

Many small and medium sized companies who have been trading with Carillion not only face huge threats to their business in terms of lost earnings, but because of Carillion’s payment terms they may not be able to claim VAT relief on unpaid bills for more than 10 months, by which time many could be out of business.

Daphne Hemingway, VAT Partner at Blick Rothenberg, said: “Companies were suffering from the lengthy payment terms and may not get paid at all. Now they are facing a long wait to reclaim the VAT already paid to HMRC on those invoices.”

HMRC today have announced they will provide practical advice and guidance to businesses affected by the Carillion liquidation through its Business Payment Support Service which can agree installment arrangements if a company is unable to pay its tax on time following the company's collapse.

Daphne said: “In this instance, perhaps HMRC should also look at reducing the wait time for obtaining a VAT refund, especially as the government is trying to get large corporations to deal more fairly with small and medium sized businesses when it comes to the payment of bills.

“In order to make a VAT debt relief claim, the debt must have remained unpaid for a period of six months, not from date of invoice, but from the date the invoice was due to be paid by Carillion (120 days payment terms). Therefore, it would be at least ten months before any of these companies would get a refund of the VAT paid upfront to the government.”

Blick Rothenberg partner Andy Sanford said: “Some 30,000 firms are estimated to be owed money by Carillion but there are steps that companies can take to mitigate their loss.

“Any potential bad debts from Carillion should be provided against and corporation tax/income tax relief can be claimed on the deduction hence reducing the tax liability.”

He added: “In due course, the company should make a claim to the liquidators as an unsecured creditor, however there is likely to be limited funds for distribution to such creditors.”

Andy said that if work performed for Carillion was part of a joint venture, it is likely that the other parties to the venture will wish to continue to use the company’s services and should be contacted in the first instance.

He added: “Companies should enter discussions with their own suppliers at an early stage to agree revised payment terms or even a reduction in costs if possible.

 “They should consider taking legal advice surrounding any possible staff cuts or changes required to existing contracts. The last thing a stressed business needs is long and complicated legal disputes.”