Advice on HMRC Tax Arrears

As the UK’s largest creditor, HMRC has an efficient and refined system in place for collecting what it’s owed. They’re not going to ignore you owing them money, but escalate your case until you take action.

Our advice is to keep in contact with them, explaining your situation and what capacity you have to pay.

Especially in the wake of COVID-19 they are exercising greater flexibility than ever before as they try to keep British businesses afloat. It’s only when you ignore them and fail to keep in contact that you risk their ire.

This article will explain the likely communications you’ll recieve from them, and your options if you can’t pay.

I Owe HMRC Money: What will Happen if I Can’t Pay the Arrears?

Your arrears will first trigger a response from Connect, HMRC’s powerful computer that picks up anomalies. This will trigger an automatical notification letter explaining that you’re late in paying. The letter will details which tax you’re late on, how you can make payment, and whom you should speak with, where appropriate.

Keep this letter safely for it will name the relevant department, plus your reference numbers.

If you can pay your tax arrears, this is the time to do so. Ignoring the letter will trigger penalies, nad interest charges. After several warnings, it could even lead to enforcement action .

The penalties and interest charges will differ, depending on the type of tax you’re late on, and by how much.

5 Steps to Help you Deal with Tax Arrears

  1. Negotiating a time to pay arrangement with HMRC, for installments you can afford, is the logical first step and works for most businesses.
  2. Using HMRC mediators, such as ourselves, can be a useful strategy where the amounts are significant. We work regularly with HM & Revenue and understand exactly how to negotiate the best possible agreement.
  3. Consider putting finance in place, such as invoice finance, for improving the cash-flow cycle within your business
  4. Where finance is not available and the pressure from HMRC is escalating, proposing a Company Voluntary Arrangement may be appropriate. This is a structured repayment plan for a percentage of the overall debt. HMRC are open to these where it can be demonstrated that this is their best chance of recouping their money. CVA’s must be proposed by a licensed insolvency practitioner such as ourselves.
  5. Where it is clear the business is not going to be able to pay its debts to HMRC and, morever, it is no longer viable as a going concern, it may be appropriate to consider liquidating the business. This means closing it down, selling assets at fair market value to pay creditors, and then striking the company off the register at Companies House. Liquidation can be an effective way to stop creditor pressure for good.