Following a long period of business support measures and postponement of tax payments, HMRC have made it very clear that they are keen to collect any unpaid VAT or other taxes owed.
Pressure from HMRC to repay tax debts
HMRC have a number of methods to collect debts owed and their enforcement powers include:
- Taking possession of business assets which can be sold to pay off tax liabilities
- County Court proceedings, resulting in the issuing of a charging order against business assets
- And where a business is part of a government accredited scheme, such as a road haulage licence, threatening to revoke licences where Crown debts remain unpaid
Read more: HMRC and the exit from lockdown
Also very important to note in any situation where HMRC are asking for repayment of debts is that:
- Directors can be held personally liable for a company’s tax liabilities where HMRC considers that avoidance or evasion has taken place, or where they have evidence of running up liabilities in a limited liability entity, then avoiding paying them by making that company insolvent, and setting up a new company carrying on broadly the same business.
- HMRC as a Preferential Creditor This means that in a formal insolvency HMRC are higher up the pecking order when receiving a distribution, and will be paid after fixed charge holders and the expenses of insolvency practitioners but before floating charge holders, company pension schemes, suppliers and customers, providing an added incentive for HMRC to chase their debts more aggressively.
Read more: Finance Act 2020 – Implications for Directors
What support can HMRC offer?
If you can pay your taxes then you should do so – but if you’re struggling, HMRC can work with you to agree a plan based on your financial position.
The support HMRC may offer will vary from business to business, but typically they will discuss a payment plan (called a Time to Pay Agreement or TTP), where customers pay what they owe in affordable instalments, generally lasting up to one year.
What should business owners do?
If your business is in arrears it is vital that contact is made with HMRC. Recognising the problem and showing a will to resolve will put you in a stronger position when it comes to negotiating a payment plan. Evidence of your business’ income and expenditure will need to be produced in a timely manner in order to agree a TTP, based on past results and future forecasts, and the accuracy of this process is very important, as failure to meet repayment instalments can lead to HMRC commencing enforcement action.
How we can help negotiate with HMRC?
We have extensive experience of setting up TTPs, and as Insolvency Practitioners we have additional tools at our disposal to help rescue a business, or a part of it, and these may include:
- Moratorium
This is a legal process which buys your business time and will protect the indebted company from creditor action during the ‘moratorium period’. This can be particularly useful where a business just needs some time to raise additional working capital.
Read more: Moratorium
- Company Voluntary Arrangement (CVA)
This is a suitable option for viable companies who have several unsecured creditors pressuring your business alongside HMRC. It is a formal agreement to pay a portion of the pre CVA unsecured creditors over a longer period of time, while paying current liabilities as and when they fall due.
See: CVA offers lifeline to business
- Administration
If the above options are not are possible, the best course of action may be to enter Company Administration with a view to turning the business around. If HMRC are about to issue a petition to wind up your business, and you cannot see a way out of your current situation, this route into formal insolvency could potentially avert the threat of legal action from HMRC.
