Oldham in trouble

Quote: Beverley red "I may seem a bit naive here but how do you end up owing the tax man money? as you pay on what you earn or have paid in wages(emloyers liability) on vat you pay 15% of what you take. If you take nothing you pay nothing, if you have spent the money you should have put aside to pay tax or paid out wages that you can not afford then I have no sypathy.
I suspect it is a lot more complicated but I would genuinly like to know how it happens.'"

Its not more complicated.

The VAT

1. You collect 15% VAT on your income. On behalf of HMG...never your money.
2. You pay 15% VAT on some of your outgoings - but not payroll-related costs.
3. Because most of your income is VAT standard-rated, and much of your costs are not subject to VAT, you end up owing HMRC.
4. You have to pay the VAT quarterly (unless a big outfit) in arrears.
5. You don't pay it when due - effectively using money which is not yours to finance your business.
6. You eventually get a winding-up petition from HMRC who finally lose patience with you holding onto money which was never yours.
7. If you go bust, you have effectively (in my book) stolen from the taxpayer.

THE PAYE/NIC (this one is far worse IMO)

1. You deduct tax and NIC from your employees' pay.
2. You have to pay this over to HMG (usually) by 19th of following month, together with the employers' NIC contributions.
3. The deductions were never your money - they are monies you have deducted from employees and are effectively holding in trust pending paying them over. The NIC contributions in particular are important since they qualify employees for pensions and benefits etc.
4 You don't pay it when due - effectively using money most of which was never yours to finance your business.
5. You eventually get a winding-up petition from HMRC who finally lose patience with you holding onto money which was never yours.
6. If you go bust, you have effectively (in my book) stolen from the taxpayer. AND screwed your employees.

In the old days, with "Crown Preference", the Crown ranked ahead of mopst other creditors for a lot of their dosh. This meant they had more certainty of getting paid out if the business fell over, so they tended not to push for winding up - let someone else do that (or initiate anotehr form of formal insolvency).

Since Crown Preference was abolished, the Crown has had to become much more active and assertive in seeking to recover money due - in the interests of all taxpayers. That's why you often see HMRC as the initiator of winding up petitions nowdays. Especially since directors often have a habit of paying off the pressing creditors and maybe their mates (and yes I know about fraudulent preference, any lawyers out there...) and leaving HMRC as the biggest non-loan creditor since they are often quite lenient before finally losing patience. So often get taken advantage of.

Like you said, its not really that complicated: just a case of companies frequently using the bank of the taxpayer as a loan, and then not being able to pay it back. And so effectively using and losing money which was never theirs in the first place. That's why when London Broncos fell over, they owed money mainly to the Crown and to the owner. That's tantamount to theft in my book, but when in that situation its more like desperation so I always tell people not to be too quick to judge unless you have been in that horrible place yourself.

hth?