Negotiating with HMRC


Following a long period of business support measures and postponement of tax payments, HMRC have now made it very clear that they are keen to collect any unpaid VAT or other taxes owed.

With the issue of a guidance paper entitled “Collecting tax debts as we emerge from coronavirus (COVID-19)” their message is simple:

If you can pay your taxes then you should do so – but if you’re struggling, HMRC want to work with you to agree a plan based on your financial position.

The support HMRC can 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.

Pressure to repay tax debts

Despite the offer to ‘work with you’, pressure on Government finances has led to HMRC ramping up collection activities. The temporary restrictions on issuing statutory demands and winding-up petitions ended on 30th September 2021, meaning that businesses now face more pressure to repay their tax debts.

HMRC already have lots of weapons in their armoury to collect debts and their enforcement powers include taking possession of business assets which can be sold to pay off tax liabilities. County Court proceedings can also be commenced, 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, we have also seen HMRC threaten to revoke these where Crown debts remain unpaid.

Read more: HMRC and the exit from lockdown

Directors held personally liable

The Finance Act 2020 introduced a clause whereby Directors may 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

From 1st December 2020 HMRC is now a secondary preferential creditor in formal insolvencies rather than a normal unsecured creditor. This means that in a formal insolvency HMRC are now higher up the pecking order when receiving a distribution, and will now 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 can business owners do?

If your business is in arrears it is vital that contact is made with HMRC. If you are seen to recognise the problem and have a will to resolve it this will put you in a stronger position when it comes to negotiating a payment plan. Evidence of your business’s 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. 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?

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.

The message is clear: Do not ignore HMRC debts!

Acting quickly, with the support of our HMRC Negotiation team, will help ensure that you receive the most appropriate outcome for your business. We will take an in depth look at your cash flow, examine all suitable alternatives, supporting you to keep your businesses afloat and trade your way back to profitability.

If you are concerned about repaying your taxes to HMRC, please get in touch with our HMRC Negotiation team who can talk you through the options available

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