HMRC Arrears Advice; Help with Tax Problems and Stages of the Escalation Process
HM Revenue and Customs are by far the most common creditor faced by company directors with debt problems. We are often contacted by directors wanting HMRC tax arrears advice. They may have fallen behind with their payments, received threatening letters about legal action, or even winding up their company.
As a government body, HMRC has substantial resources available to recover any unpaid tax; so it’s vitally important to make them a top priority.
We’ve set out the stages of the escalation process to help you identify what actions HMRC could take, how it would be likely to progress and the actions you can take to address the issue. We have also added a useful points section for notable areas of focus.
(1) Threatening Letters
Once HMRC has realised that you are having tax problems, they will write to you and explain that your company has a duty to pay its tax and that it may be subject to penalties for late payment of HMRC arrears. These letters will be threatening in tone as they are intended to goad you into action.
What you can do
The resounding advice at this stage and all later stages is not to ignore the letters. Ignoring HMRC will not make the problem disappear. On the other hand, if you engage with HMRC about your tax problems, you may be able to stop the situation worsening as quickly as it certainly will if you do nothing.
If the debt has arisen from temporary circumstances, you may want to consider raising the funds in a manner suited to your business in order to pay the outstanding amounts.
HMRC will want to know that you are trying to clear your tax arrears. A payment, even a fraction of the total amount, 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. Even if you fall into arrears with one tax payment, try to make any subsequent tax payments on time.
Where this is not an option, you should speak to HMRC to see if they will consider a ‘time to pay arrangement’.You may find that they will be more accommodating than you expect and give you some leeway. Typically, they will give you up to 12 months to settle the tax arrears with HMRC and get up to date with your tax payments.
We talk about Time to Pay arrangements in more detail on the page above, but you need to make sure you are well prepared for any call with HMRC where you are requesting a time to pay – know the exact amount the company can afford to pay on a monthly basis and communicate why this is the case. Having projected cash flows and a business plan to hand for this call will help you significantly. If you’re not comfortable doing this, we can negotiate with HMRC on your behalf.
(2) HMRC Field Agent (Enforcement Officer) Visit
If you do not make payments to HMRC, they will send a Field Agent, or Enforcement Officer to discuss your tax arrears in person. They can negotiate payment terms for HMRC arrears of up to around £100,000.
What you can do
Engage with the Field Agent or Enforcement Officer. Although it’s always best to be pro-active about trying to settle a debt to HMRC, you can negotiate with the field agent when they visit. Always be clear about why the company can’t pay the outstanding debt, and how you will set about making the repayment of the debt a priority.
(3) HMRC Enforcement Notice (previously known as a Distraint Warrant)
An enforcement notice will be logged and served if you fail to make payments, despite previous warnings. Seven days after the 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.
Be aware that HMRC does not need to ask for Court permission to seize goods, unlike other creditors (except landlords).
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. If you have not spoken to HMRC, do so as a priority. You should also speak to an experienced professional, such as ourselves, to advise you as to the options available to you given your circumstances.
(4) Legal Action against tax
HMRC 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.
The legal action may also involve the use of contracted debt collection agencies.
What you can do
Again, try to speak to HMRC to negotiate terms to settle the debt. Ensure that you respond to the claim and, if it cannot be settled prior to going to court, attend the hearing. Again, we can help but the sooner we are brought on board at this stage, the more chance we have of negotiating an effective resolution.
(5) HMRC Security Bonds
If they believe your company is insolvent, HMRC 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.
The security must be provided before a stipulated date and trading after that date is a criminal offence. A fine of £5,000 for each offence is also applied.
Be aware simply closing the company and starting again is unlikely to be successful as the bond can be transferred.
What you can do
If HMRC send a Notice of Requirement, you can appeal the decision if you think that HMRC have not made their decision based on the correct information, or if you think there is additional information that they should take into account. If you want to appeal, you should do so as soon as possible, but at the latest within 30 days of the issue of the notice.
It’s a criminal offence to trade after the date stipulated in the notice if you have not given the security required by it to HMRC. This is a very serious position to be in and you should seek advice from insolvency professionals, such as ourselves, as soon as you receive the notice.
(6) Winding Up Petition
If you’re failing to respond to the tax debt collection or security request, then they will ask the Court for a hearing and serve a winding up petition. Typically, you will have seven days from the date the petition is served to satisfy HMRC enough to stop them advertising it in the London Gazette. Be aware that the court hearing for the petition cannot be stopped once the petition has been served. Legal costs will be added to the debt. No company assets can be transferred or sold after the petition is served.
Once the petition is advertised in the London Gazette, your company bank accounts will be frozen. Other creditors can then use the same petition to wind up your company. Debts of more than £50,000 will be dealt with at the High Court in most cases.
What you can do
As stated above, once the petition has been served, you cannot stop the court hearing. You can, however, negotiate with HMRC to stop them from advertising the winding-up petition in the London Gazette. The advertisement alerts other creditors to the company’s position and they can use the same petition to wind-up your company, meaning it can worsen the situation significantly.
You need to act quickly – there’s only a seven day window between the serving of the winding up order and the advertisement of the petition. We can negotiate with HMRC on your behalf to stop them advertising the petition in the Gazette and have a good success rate of doing this for clients in the past but need to be informed as soon as possible after the petition has been served in order to have a chance at success.
Useful Points to Know
HMRC Tax Arrears Investigations
Your past behaviour can have a significant impact on HMRC’s decision to investigate you. They may become suspicious if you have had a string of companies in the past that have been liquidated. Limited companies that handle a lot of cash, such as taxi firms, fast food outlets and pubs, will also come under the spotlight.
A tax investigation may mean a visit from a ‘compliance team’ to check your accounts and records. If you’ve made a genuine error, inform them immediately; as any attempt to hide it may result in an increased fine or penalty.
Time to Pay Arrangements
If HMRC allows a ‘time to pay arrangement’, remember that this only applies to the tax arrears in question – any future taxes still need to be paid on time and in full.
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.
Powers to Seize Tax that is Owed
Some treasury departments technically have the powers to seize funds, although HMRC would typically seek a court order before doing so. If you owe tax for PAYE and the debt is below £3,000 they may often take the arrears via an adjustment to your tax code. The reality is that if you are a company and you do not have the means to pay taxes they may seize your company’s cash or assets.
Despite not having preference over other unsecured creditors, the budget changed in April 2014 to allow HMRC to seize tax that is owed from an individual or company bank account. The law, following consultation which ended July 29th 2014, came into force in April 2015. In principle, you should receive several warnings and your bank account may be frozen as a ‘warning sign’ before any money is actually taken from the account. They must leave at least £5,000 in your bank account and can take as little as £1,000. You can read more in the Economia magazine for the (ICAEW) Institute of Chartered Accountants of England & Wales by clicking here.
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’. Although they have had the powers since 1992 these powers have been rarely used in the past though there does definitely appear to have been an increase based on our anecdotal experience. So, directors please take note you must seek professional insolvency advice immediately where PAYE or National Insurance Contributions are owed.
They do have the right to pursue directors personally for unpaid 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 none 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.
PAYE/N.I. Tax Problems
Although limited companies protect a director’s personal assets, this does not apply in PAYE or National Insurance cases where the director is proven to be criminally negligent. Although unusual, this is becoming more common and directors should seek professional insolvency advice immediately if significant sums are unpaid.
Trading while insolvent and showing preference to one creditor over PAYE or NI – for example, if staff are not paid, but company directors pay themselves – can prompt HMRC to take a more serious look at a company.
HMRC Tax Problems? Contact Us Today for Tax Arrears Advice
If you’re struggling with HMRC arrears and need advice, contact us to get help on the more serious stages of HMRC tax problems and threats. Please call us on 08000 746 757 or you can use our live support feature at the bottom-right of the page.
Useful Resources and Related Content
- How Are HMRC Tax Penalties Calculated
- What if you’re received a Notice of Enforcement from HMRC
- What to Expect from HMRC Fraud Investigations
- HMRC Time to Pay Arrangements
- HMRC Debt Collection Agencies
- HMRC Personal Liability Notices
- Costs and Charges in an HMRC Tax Investigation
- How Far Back Can HMRC Investigate Tax Affairs
- How and When to Pay VAT
- HMRC’s Tax Payments on Account
If you don’t pay your tax bill: https://www.gov.uk/if-you-dont-pay-your-tax-bill
Debt collection agencies: https://www.gov.uk/if-you-dont-pay-your-tax-bill/debt-collection-agencies
Taking control of goods (distraint): https://www.gov.uk/if-you-dont-pay-your-tax-bill/taking-control-of-goods
Business Payment Support Service (BPSS): https://www.gov.uk/government/organisations/hm-revenue-customs/contact/business-payment-support-service