Never too late for HMRC business rescue

HMRC business rescue is not easy and especially as HMRC are involved. HMRC are generally acknowledged to issue more winding up petitions than any other creditor organisation in the UK. Clearly they are a shutterstock_374290978huge organisation but it’s worth understanding once company debt goes to the Debt Enforcement Team in Worthing you have a very serious problem. This was highlighted to me recently when I was called by a director who insisted on me calling HMRC with a further offer to repay the debt he owed in unpaid VAT, PAYE and Corporation Tax. The problem was he had had a Time to Pay plan with HMRC in place or at least he had up until he received his final demand on a corporation tax bill.

We have advised hundreds of directors on the subject of a winding up petition usually caused by cash-flow issues and once a company starts to default on paying its bills it becomes insolvent An insolvent company has certain obligations to its creditors and if the obligations are not met and a creditor can prove you cannot pay your bills when due then they can close your company. The debt does not have to be large either -£750 is all it takes for a company to be wound up.   

I spoke to one director of an insolvent company recently and he was genuinely shocked when HMRC refused to negotiate another payment plan even though he had maintained his payments. He had found himself being pursued by the Debt Enforcement team and I had to explain why HMRC had taken the view they had – refusing to accept any payment other than full payment. The Debt Enforcement team are tasked with not only recovering unpaid taxes but also setting an example to the tax paying public at large. It’s worth understanding this point, along with the fact that HMRC are not a commercial organisation so are not driven as you and I are by profit. This may or may not be the correct attitude but you will know where you stand and they will argue they have lost confidence in you and your company’s ability to pay. 

A quick visit to HMRC’s website will tell you that they will take any lack of payment of due taxes as a default. In other words it is not always explicit that any, ‘Time to Pay Arrangement will assume that all other taxes are paid when due and any failure to do so will be taken very seriously. This is the most common reason for Time to Pay Arrangements failing. It is absolutely vital that you do not lose the confidence of HMRC when negotiating a payment plan so make sure they are included in any cash-flow/profit and loss accounting. It is very easy to feel intimidated by HMRC understandably they have wide ranging powers but they have no preference over any other creditor so bear this in mind.

HMRC have clearly laid out processes that they adhere to internally so my first objective is to understand where they are in the winding up process and provided we catch them early enough we can often save the business. It is also worth understanding that once a winding up petition has been issued that you will be expected to pay any legal costs incurred by HMRC in issuing the petition. Typically this legal cost will be around £800 but this can be avoided simply by acting sooner rather than later so do not leave it until it’s too late. 

If you want to continue to trade then there certain key tasks that need to be completed and in a very short space of time and not least getting HMRC onside. Whilst this may seem impossible to you and illogical HMRC will very often cooperate with a professional insolvency specialist when they will not with you.  

The key message is, it is never too late and always worth a call but in general if it is a ‘petition’ and not an ‘order’ than we can usually help. In this case we actually used a company voluntary arrangement (CVA) as the debts were quite high and could easily prove the CVA was better than liquidation even though HMRC confidence had been shaken. I would emphasise it is a misconception that just because HMRC are the major creditor they will not accept a CVA – this is not the case and we have had quite a bit of success in this area. A lot will come down to the experience, and relationship with HMRC and knowledge of internal practice.Be careful out there.

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