Understanding the role of HMRC as a creditor
As outlined above, we will provide advice on what HMRC mean for your company, and the tools at their disposal.
HMRC: The figures
According to a recent report released by Enterprise Tax Consultants, HMRC emerged as the greatest single creditor in 65% of liquidations over the course of 2017. This substantial number has increased by 11%, recorded only five years ago.
While the number of compulsory liquidations fell by 4.5% in 2017, the recent figures demonstrate that companies – particularly, startup businesses – may be struggling with the complex tax codes and filing tax returns. The total amount claimed by HMRC has risen by 50%, with the amount owed to HMRC reaching £830 million last year.
Unfortunately, simply stating you were unsure how to file your tax return is certainly no excuse. There are a range of options available for firms – outlined below – with 1.5 million time to pay arrangements afforded to businesses in the previous financial year.
Types of HMRC debt
HMRC debt may be one or more of the following:
HMRC VAT arrears are a common scenario for many businesses, and are taken very seriously. The first stages of HMRC debt management include interest and penalties, moving onto the next step of enforcement through third-party debt collection agencies. We have outlined the procedure for HMRC VAT penalties in our extensive guide.
Corporation tax is a legal obligation for all UK companies. Corporation tax refers to a tax on your annual profits, and you will immediately be informed of your liabilities when registering the business at Companies House. More info can be found here.
PAYE refers to the employer’s responsibility in collecting tax and National Insurance Contributions. Your PAYE contributions are due monthly, with late payments resulting in financial penalties and additional interest. A late PAYE payment, generally, suggests deeper financial issues within your company, so you must alert HMRC of your inability to pay.
Managing the debts
The most common HMRC payment plan is the Time to Pay Arrangement (TTP). This formal arrangement, taking place over an average period of 6-12 months, enables companies to make realistic repayments. You can arrange for longer periods to make payments, but we advise seeking professional advice to your most suitable option. However, be aware they are usually reluctant to grant arrangements that do cover a long period.
What can they do?
HMRC are not only responsible for collecting taxes owed, but enforcement. To be clear, they do not punish, but only enforce. Essentially, their role is:
- To stop the debts owed escalating
- Close companies who are not paying their taxes
- Set an example to the general public
Where HMRC believe a company is suffering severe cash flow issues and may be about to become insolvent, they may ask for a security bond. Different departments collect various taxes, and the Securities Team will serve a Notice of Requirement. Often, this may also include a personal liability notice.
As part of HMRC debt management, they may also send enforcement officers. The High Court has authorised a high court enforcement officer (HCEO) to recoup losses and unpaid debts. They may visit your business premises and make a note of goods that can be seized. It’s also important to note that they can attend your company without obtaining court permission to do so. However, they will primarily provide an opportunity to pay, helping to set up a HMRC payment plan. If that is not successful, they do have the power to uplift company goods. You can read more on what a visit from a HCEO means for your business here.
Generally, the HMRC debt will not go further than the Enforcement & Insolvency Team. This team will resolve any unpaid debt, resulting in collection or closure of the company. The most serious threat from HMRC is the winding up petition. If you have received this petition, you must seek immediate, professional advice. A winding up petition is not to collect debts, but to close your insolvent company. You can find more information on the compulsory liquidation procedure here.
HMRC will, typically, continue action against a company to recover debts, until the company has engaged a liquidator or held the creditors meeting. If you are struggling with managing cash flow and need help in obtaining HMRC tax advice, you can speak to our business rescue experts today.