When a company is insolvent and unable to pay its bills, the temptation is to pay the creditors who shout the loudest. If you have a supplier on the phone every other day asking why their invoice hasn’t been paid, it’s understandable that you’d pay up to remove the constant worry and stress.

At one time or another, the vast majority of small businesses will go through a period when it’s difficult to fund their operations. In this case, you might choose to ‘borrow’ from HM Revenue and Customs to pay more vocal creditors. However, the perils of this approach are clear, with 85 percent of director disqualifications handed to individuals who treat HMRC unfairly. The most common tax used inappropriately is VAT and HMRC are well aware this is the case and are likely to challenge you on this fact.

What will happen if you ignore HMRC?

You can be banned from acting a company director if you fail to meet your legal obligations and your conduct is deemed unfit. ‘Unfit conduct’ includes:

• Allowing a company to carry on trading when it can’t pay its debts
• Not keeping proper company accounting records
• Not sending accounts and returns to Companies House
• Not paying tax owed by the company
• Using company money or assets for your personal benefit

If your company owes money to HMRC in the form of unpaid PAYE, VAT or corporation tax, you need to act quickly to prevent legal action such as winding up. HMRC are generally willing to help companies that have short term cash problems, and are unable to pay their tax liabilities on time, via the Time to Pay arrangement. However, it is essential you contact HMRC as soon as you know you won’t be able to pay your tax bill in full. This will give you the best chance of reaching a Time to Pay agreement with HMRC.

Even if you know you’re not going to be able to pay your tax bill in full, it’s essential you continue to submit your tax returns to show HMRC you are willing to meet your obligations. If you ignore an HMRC debt, you are likely to be visited by private bailiffs who will seize company assets to pay the debt. Alternatively, HMRC will petition for your company to be wound up.

Impending problems with HMRC

The following warnings signs are indicative of an insolvent company which will soon find itself in trouble with HMRC. If any of the following are becoming a common occurrence for your business, you should seek expert insolvency advice immediately:

1. You’ve fallen behind with PAYE payments – You have not been able to pay the monthly PAYE and NIC deductions on time.

2. You’re filing late VAT returns – You are not filing VAT returns on time or paying your VAT bill by the deadline.

3. You’re receiving late payment penalties from HMRC – You have received late payment penalties from HMRC, and despite agreeing ‘Time to Pay’, you are still struggling to catch up with your payments.

4. Legal action has been taken – If your file has been passed to the HMRC enforcement office and you’ve already received a statutory demand, a winding up petition could soon follow.

5. You are paying other creditors rather than HMRC – If you are prioritising payments and paying unsecured creditors rather than HMRC, you could find yourself in real trouble.

If you can’t pay your tax bill, HMRC will take enforcement action to collect the money due. You may be able to avoid any action if you contact HMRC at your earliest opportunity. If you’ve been refused a Time to Pay agreement in the past, you should get in touch with CompanyDebt.com immediately. We can help you negotiate a Time to Pay arrangement or propose a company voluntary arrangement (CVA) to cease any ongoing legal action.

We have successfully negotiated over £1.2m in time to pay arrangements in the last three months alone so call 0800 074 6757 to get professional HMRC tax help fast.