HMRC ready to flex their muscles to recoup money before March 2021
The first story was the return of Crown Preference.
From December 1st, the HMRC has been reclassified as a preferential creditor which means that it will be repaid certain outstanding taxes such as Employees’ PAYE, National Insurance Contributions (NICs) and VAT ahead of floating charge holders and suppliers if a business becomes insolvent.
Previously abolished in 2003, the government announced that it was going to reinstate Crown Preference in the 2018 budget although the economy and business landscape of 2020 is vastly different..
While it’s too soon to observe any immediate changes or consequences of the decision, it’s a fair assessment that there’s going to be some.
For instance, if lenders now find themselves behind the HMRC in the queue for repayment then they could be less likely to lend large amounts in the first place. Or they could raise their interest rates to reflect the additional risk that lending will now carry.
R3, the representative body of the insolvency industry, has been strong in its resistance to the reintroduction of Crown Preference since its announcement.
They have written about how they foresee that there could also be a reduction in the number of successful Company Voluntary Arrangements (CVAs) as another unintended consequence.
Their argument is that as HMRC will now rank as a preferential creditor, their approval will be required in order for CVA proposals to pass.
R3 think they’re unlikely to grant this approval unless the CVA includes a proposal to pay all qualifying tax debts in full. If this happens then the funds available for all other unsecured creditors will be reduced – meaning that it will be harder to secure their approval for proposals where they will receive less.
Equally logically, they assume that with less cash at hand the prospects of the CVA will also be lower as the company will have less money to invest in the business or to have in reserve for any unexpected or emergency situations.
CVAs provide an important route to business recovery and rescue and generally provide a better outcome for creditors than any of the alternatives including administration or liquidation.
If their use or success comes under threat then this will have repercussions throughout the insolvency industry in 2021.
The other news illustrates how seriously HMRC are taking their debt recovery mandate.
As well as using their own staff and recovery operations they can use private debt collection agencies (DCAs) to recover outstanding payment from debtors.
The amount they invest in this operation is not insignificant.
Figures were released this week that showed that over the past three tax years, HMRC spent over £84 million on DCAs with nearly £4.5 million spent on final opportunity letters alone.
The financial secretary to the Treasury, Jesse Norman MP, revealed the figures and said: “As part of their overall collections strategy, DCAs provide HMRC with additional capacity.
“The department keeps under review the cost effectiveness and value for money that using DCAs provides to the exchequer and UK citizens. There are no current plans to move away from using agencies to send final opportunity letters.”
HMRC added: “Over the last few years DVAs have contributed directly to HMRC’s improving performance towards reducing the tax gap – the difference between what tax is owed and how much of it is paid.”
You know that phrase “we’re no experts but…” when somebody wants to make a statement with certainty?
Well, we are experts and we know for sure when HMRC are preparing for a big effort to reclaim any unpaid taxes if not beginning now then definitely in the New Year.
The economic impact of Covid-19 and the various support measures rolled out by the government has had a seismic effect on the Treasurys spending plans as much of it is based on probable income from taxes.
HMRC will be tasked to recover as much as they can before the end of the tax year in March 2021 so the next few months will be critical for them to achieve this task.
If you are behind on VAT, PAYE, NICs or any other tax accounts and won’t be able to settle them in full when asked by a DCA then you need to get in touch with us.
We’ve got a strong track record of helping businesses find solutions to their HMRC problems – either helping them to fully pay off their outstanding debts or reaching agreements for more affordable payments made over a longer period.
Everyone is hoping that 2021 will be a lot better than 2020 but a payment demand could shatter this dream before the Christmas decorations have come down.
Act now and you’ll be able to really look forward to surprise knocks on the door over the holidays.