HMRC Tax Debt Problems – Advice and Solutions
HM Revenue and Customs are by far the most common creditor faced by company directors with debt problems.
If you have tax arrears with HMRC we offer specialist, experienced help with identifying your best courses of action if you can’t pay your tax bill.
Our services often include putting together information in support of negotiating with and convincing HMRC to agree a Time to Pay Arrangement, possible other options such as administration but if the worst happens, our Insolvency Practitioners can advise on liquidation.
Problems Paying HMRC
Difficulties paying HMRC are extremely common: they are the UK’s largest creditor.
Generally, HMRC try to be as helpful and supportive of British businesses as they can be. If you can’t pay HMRC, you need to keep in contact with them, respond to their letters as promptly and efficiently as you can, and demonstrate you are doing your best to run an efficient business and reduce tax arrears.
Failing to respond to HMRC is the worst thing you can do, and will begin a process of escalation.
What Happens if You Don’t Pay Your business tax in the UK?
Receiving a letter from HM Revenue and Customs is a worrying experience. The letters are threatening in tone as they are intended to push you into action.
What you can do: Under no circumstances, ignore the letters and continue working as if everything was normal. On the other hand, if you engage with HMRC about your tax problems, you may be able to stop the situation worsening.
HMRC will want to know that you are trying to clear your tax arrears. Even a nominal payment will provide some evidence of this and may even prevent legal action in the future. Keeping them informed will also instil more confidence that your company’s case file does not need to be escalated to the next stage.
If your business continues not paying tax subsequent steps may include :
HMRC May Send You An Enforcement Notice (Distraint Warrant)
An enforcement notice (distraint warrant) will be logged and served if you fail to make payments on your tax bill, despite previous warnings. Often the first letter is entitled ‘Warning of Enforcement Action.’
Seven days after the Enforcement Action warrant is served, HMRC will be entitled to seize any non-essential assets and sell them at auction – usually at a lower price than you might be able to achieve otherwise.
What you can do: You need to take action as soon as possible after receiving the enforcement notice as there is a set timeline of events that will lead to HMRC seizing certain of the company’s goods to sell to set off against the debt.
HMRC May Take Legal Action Against You for Unpaid Tax
HM Revenue and Customs will then either take your company to the county court or issue a statutory demand. These options depend on the amount, history and lateness of your payment – in either case you will be given a deadline to respond to the claim.
HMRC Security Bond
If HMRC believe your company is insolvent, they may want security. The security bond is a very serious legal instrument and in some cases more serious than a winding up petition. A Notice of Requirement (NOR) of Security is used for VAT and PAYE.
The added complication is that the company tax debts can be transferred to the directors or other named individuals in the NOR. The debt is usually expressed on a joint basis with the named individual.
Winding Up Petition
If you’re failing to respond to the tax debt collection or security request, HM Revenue and Customs they will ask the Court for a hearing and serve a winding up petition.
Help Negotiating Time to Pay with HMRC
Asking HMRC for time to pay in instalments is one of the key options available to a business in arrears.
If they allow a ‘time to pay arrangement’, (payment instalments) remember that this only applies to the tax arrears in question – any future tax bills still need to be paid on time and in a single lump sum.
To get a Time to Pay Arrangement, you’ll need to demonstrate you’re organised, keep in regular contact with HMRC, and have a realistic chance of paying back what you owe within 12 months of instalments.
Failing to pay other taxes will be considered as a default and may affect their faith in your company’s ability to pay. This can be an important factor later on if you enter into a company voluntary arrangement.
It’s, therefore, vital to take all future taxes into account when pulling together your cash-flow forecast to help prevent any further HMRC tax problems. Any default is likely to result in the automatic threat of a winding up petition.
Can HMRC tax debts be written off?
The only way HMRC would do this is if they were presented with a proposal for a Company Voluntary Arrangement, by an insolvency practitioner such as ourselves.
A Company Voluntary Arrangement is a structured repayment plan for companies in debts, for a percentage of what they owe. Once an insolvency expert has assessed how much the company could afford and over what time frame, he/she makes a forma proposal to creditors (which may include HMRC) about what is possible.
Creditors need to vote to approve this but, if it goes through, the rest of the debt will be written off.
Help with HMRC tax debt problems
If you have a significant tax debts which you are struggling to pay, we provide experienced advice. On a day ti day basis, we help small businesses with potential solutions including:
Time to Pay Arrangement – Arrange with HMRC to pay back your debt over time, in agreed instalments
Organise a Company Voluntary Arrangement – this is a structured payment plan for companies, arranged with the assistance of an insolvency practitioner. HMRC will accept these in the right circumstances providing it is well thought through and presented to them correctly.
Raise Finance – If you have the option to raise finance, this might be a preferable course of action to the kind of escalation which will entail if you don’t pay HMRC.
Put the Company into Voluntary Liquidation – If you can’t pay your bills and are facing threats from HMRC, taking control by voluntarily liquidating the company might be the best option available to you. If this needs to be done, our focus is on keeping the proceedings as stress free and smooth as possible for company directors.
HMRC’s Powers to Pursue Directors for Tax Arrears
HMRC do have a number of powers to pursue directors personally but they are used usually only in exceptional cases as opposed to being used as the ‘norm’. Read the full article here on Whether Directors Can be Held Personally Liable for Tax Debts.
HMRC do have the right to pursue directors personally for failure to pay PAYE tax arrears and/or National Insurance Contributions under the Social Security Act and usually by way of a Personal Liability Notice (PLN), however, this is usually only in the following circumstances:
- Where a director has deliberately withheld PAYE/National Insurance in favour of paying creditors and/or the directors, themselves.
- The directors have been criminally negligent in their managing of the company PAYE/National Insurance.
- The directors committed a fraud that led to non payment of PAYE/National Insurance.
- NB: HMRC would need to prove the directors/officers of the company (including a manager) deliberately withheld PAYE/National Insurance and showed preference to themselves or another creditor.
Do you need HMRC Tax Debt Advice?
If you’re struggling with tax arrears and need advice, contact us to get help on the more serious stages and threats. You can contact us on 0800 074 6757 or use the live chat to get in touch. Our email address is firstname.lastname@example.org