What happens when you receive your next VAT bill from HMRC and realise you simply can’t pay? At first you might think you’re experiencing a minor cash-flow problem, but before you know it, this could turn into an inability to replace stock or even pay your suppliers. What started as one bill you had underestimated or not properly accounted for can quickly turn into a fight for survival.
If you have an HMRC debt that you’re struggling to pay, you need to act now. Burying your head in the sand will only lead to the escalation of the situation. If you fail to comply with HMRC, you will be hit with penalty charges and could even have assets seized to pay the debt and associated costs. HMRC can also start winding up proceedings if the debt isn’t addressed.
Initially, this will take the form of a statutory demand. This is a formal demand for payment of the debt, which gives you up to 21 days to respond. If you fail to respond during this time, HMRC can then send you a winding up petition. If you still fail to take action, this can lead to the permanent closure and liquidation of your business.
However, even if you do not have the funds available to pay the HMRC debt, there are steps you can take to prevent HMRC from winding up your business:
Write to HMRC
Communicating with HMRC throughout the process is essential. Reaching a Time to Pay arrangement with HMRC is one potential solution to this problem, but first you might want to try writing to HMRC with an offer of a payment plan.
You should send a letter to HMRC via recorded delivery explaining why you are having difficulties, the amount you can afford to pay and over what period. To stand any chance of success you must be reasonable, but still offer to pay an amount you can afford.
Speak to the ‘Time to Pay’ team
When times are hard, a Time to Pay arrangement can allow you to spread your repayments over a longer period of time. When negotiating with the Time to Pay team, it’s essential you only agree to a repayment schedule you can realistically afford, as any missed payments will lead to the cancellation of your plan. You should also keep in mind that HMRC will insist that all other ongoing taxes are paid promptly when due. For this reason, it is advisable to work with an experienced professional who can negotiate with HMRC on your behalf.
Propose a company voluntary arrangement (CVA)
If you cannot reach a Time to Pay arrangement with HMRC, you can propose a company voluntary arrangement (CVA) with the help of an insolvency practitioner. If agreed, a CVA will allow you to pay your debts over a period of up to five years while you continue to trade. Simply proposing a CVA will also buy you time, as all ongoing legal action will cease while HMRC considers the proposals.
Obtain an administration order
If you are unable to pay your debts to HMRC, the company can obtain an administration order which will stop any legal action being instigated or continued. The administration will be managed by an insolvency practitioner, who in effect becomes the chief executive of the company. Their primary objective is to rescue the company by restructuring its financial affairs. If the company can’t be rescued, its assets will be sold off for the benefit of HMRC and any other creditors.
Even if the company can’t be saved, at least this course of action will prevent a compulsory liquidation, which could lead to a director disqualification or personal liability for a proportion of the company’s debts.
Dispute the debt
If the debt HMRC claims you owe is unfair or inaccurate, you can dispute the debt. However, you should only dispute the debt if you genuinely believe a mistake has been made. This is a serious allegation known as ‘abuse of court power’, so it’s certainly not a strategy that should be used as a delaying tactic.
How can we help?
If you have been served a statutory demand or winding up petition, please do not delay in contacting us. The sooner you get in touch, the more effectively we will be able to handle the matter. Please get in touch with our experienced advisers today for a cost- and obligation-free discussion of your circumstances, with complete confidence assured.
Written by: Mike Smith