If, as is widely predicted, the Carillion liquidation proceeds, sub-contractors owed money by Carillion will have to join the list of unsecured creditors and are forecast to receive no more than 1p in the £ as a pay-out.
Apparently, most Carillion suppliers have been keep waiting for 120 days to get their invoices paid. If that proves to be the case for your business, there are a few basic steps you could take to regularise your financial position apart from laying off staff and sub-contractors engaged for your Carillion work. They are:
Bad debt: First job is to quantify the amount of the debt owed by Carillion, contact the liquidators and register your claim.
VAT: If you are registered for VAT and using the standard method of accounting you will have paid over any VAT added to your invoices to Carillion, and if these debts are now irrecoverable you can claim this VAT back. You will need to wait as debts need to be unpaid for 6 months. If you use a VAT special scheme (Cash Accounting for example) you only pay VAT when you are paid so no claim will be necessary.
Self-employed? If you are self-employed, any payment on account for 2017-18 (due January 2018) will be based on your taxable income for 2016-17. As your profits for 2017-18 are now likely to be much reduced, it may be possible to reduce the payments on account falling due for payment January and July2018. You will need to lodge a formal application with HMRC.
Limited Company? If you are an incorporated subcontractor you will have lost possibly four months past turnover to bad debts and future income from your Carillion contract(s). This will make a severe dent in your current year’s profitability and a significant reduction in any corporation tax you may owe. In many cases it may result in losses for the current year that can be carried back for corporation tax purposes and used to reduce tax paid in previous years. You will need to take professional advice on this point.
Banks: Hopefully, your bank will be sympathetic, and extend facilities to see you through. They will, however, need forecasts to determine that you can survive the loss of past and future earnings from Carillion. Which bring us to the last and perhaps most important review you should undertake.
Update your business plans: You will need to sit down with your advisors and consider your options. Perhaps this blow will be terminal for your business and you will need to follow Carillion into liquidation, but this may not always be the case. On careful consideration of your options will show the way.
The government has also issued a press release for businesses that were contracted to Carillion and will be concerned about their ability to pay their tax. As part of its ongoing commitment to delivering support for businesses, HMRC will provide practical advice and guidance to those affected through its Business Payment Support Service (BPSS).
The BPSS connects businesses with HMRC staff who can offer practical help and advice on a wide range of tax problems, providing a fast and sympathetic route to agreeing the best way forward and addressing immediate concerns with practical solutions.
The BPSS can:
agree instalment arrangements if you’re unable to pay your tax on time following the Carillion collapse
suspend any debt collection proceedings
review penalties for missing statutory deadlines
reduce any payments on account
agree to defer payments due to short-term cash flow difficulties
HMRC can also provide workers and their families with cash support through the tax credits system – details are on the https://gov.uk website.
If you find yourself without advice at this difficult time, please call to discuss your options. Clients affected should call as soon as possible so we can organise tax appeals and consider other matters.