HM Revenue and Customs are by far the most common creditor faced by company directors with debt problems.
This article will explain how HMRC handle business tax debts, and your best courses of action if you can’t pay your tax bill.
It’s intended as a comprehensive source of information about how HMRC handles debt, and is updated regularly.
How Do I Contact HMRC About Tax?
HM Revenue and Customs is carefully split into departments so you need to do your research about who to contact. If you don’t do this you’re liable to spend a lot of time on the telephone without getting the resolution you need.
Any communication you may have from HMRC will have a department name on it. This information is key to getting to the right person quickly.
You can also search their own Gov.uk documentation to source the relevant contacts here: https://www.gov.uk/government/organisations/hm-revenue-customs/contact
HMRC’s Debt Management and Banking Team Contact Details
If you need to speak with a someone at HMRC’s dedicated Debt Management and Banking Team about your business finances, their Gov.uk contact details are as follows:
HMRC Debt Management helpline phone number is 0300 200 3887.
Make sure you have all your relevant information to hand before picking up the phone.
How Do I Find my HMRC Tax office?
Any communication you may have received from HRMC will list the relevant department, including contact details.
We also have a dedicated article listing all of the HMRC offices, with contact details.
What Happens if You Don’t Pay Your Tax in the UK?
(1) They’ll Begin With Threatening Letters
Receiving a letter from HM Revenue and Customs is a frightening experience. The letters are threatening in tone as they are intended to goad 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.
Read our full article here on: Threatening Letters.
(2) HMRC Will Appoint a Debt Collection Agency
Most HMRC Debt Collection is now outsourced to 3rd party agencies. One of these may contact you on HMRC’s behalf and this of course baliff proceedings are a stressful process.
You should understand that are legally required to send you a letter before turning up at your door with bailiffs and, if they do turn up, they cannot enter without your express permission.
Read our full article here on HMRC Baliffs, and their rights and powers.
(3) 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.
If you have not spoken with them, do so as a priority. Call us now if you have queries as to the options available to you given your circumstances.
Enforcement Action is never something to be ignored.
(4) 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.
The legal action may also involve the use of contracted debt collection agencies.
What you can do: Again, try to speak with them 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 Bond (NOR)
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.
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 they have made their decision based on incorrect information about your business finances. 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. 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, HM Revenue and Customs 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 fees may 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.
Needless to say court action is about as serious as it gets for a limited company. You should act as soon as possible if you’ve been contacted with a Winding up Petition, time is of the essence if you want your business to survive.
We Can Help you with HMRC Inland Revenue Debt
HM Revenue and Customs has significant resources at their disposal to recover unpaid tax; so it’s vitally important to make them a top priority. Have a look at our HMRC knowledge-platform to learn much more about many different elements surrounding tax debt and HMRC.
It’s worth pointing out that we only deal with business debt, not individual bankruptcy, income tax arrears or personal insolvency. We can help with these if they’re related to or a consequence of corporate insolvency but not as a standalone matter, for example organising Individual Voluntary Arrangements (IVA).
How Long Will HMRC Give Me to Pay in Instalments?
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 intalments.
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.
How Far Back can HMRC Claim Unpaid Tax?
The standard time frame is 4 years, which extends to 6 years if HMRC feel a taxpayer has been ‘careless’, making obvious mistakes.
Where suspected fraudulent behaviour is concerned, HM & Revenue can delve back as far as 20 years.
How do I Know if HMRC are Investigating me?
The initial red flags for any HMRC investigation are typically picked up by their super computer ‘Connect’, which is a military grade machine built by BAE Systems and with the power to assess a wide range of data. If it finds an inconsistency it may trigger a human to start looking deeper.
If this closer look suggestions a formal investigation is required you will receive a letter from HMRC explaining that, and the process they will follow.
What Happens if I Owe HMRC Money?
If you have a significant debt which you can’t pay, your options are as follows:
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.
What are my options for HMRC Tax Help?
As the UK’s largest creditor, HMRC have efficient and sometimes quite intimidating methods in place to recoup what is owed them. This section delves into specific solutions that may help you get through your HMRC debt.
My Business Has PAYE/N.I. Tax Bill 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 employees are not paid, but company directors pay themselves – can prompt them to take a more serious look at a company.
What Can I do do about HMRC VAT Arrears?
HMRC take VAT more seriously than some other forms of tax debt, so if you are behind with your payments the suggestion is to act promptly to ensure the situation doesn’t escalate. Significant VAT arrears is a notable indicator of insolvency also so bear in mind that problems in this area may prompt HMRC to probe deeper into your company’s tax affairs.
Many companies experience VAT issues due to tax inaccuracies, specifically as they reach the VAT threshold. Sometimes Accountants do not register the business for VAT when they should or equally do not deregister when the business’ turnover drops below £83,000. This can cause issues with the amount of VAT that is expected from HMRC and the amount that the business is aware it owes.
What you can do: VAT Arrears is best tackled head on, by keeping clear lines of communication with HM and Revenue, and negotiating where possible. If you’re interested in learning more, read the full article on HMRC Vat Arrears. You should also bear in mind that negotiating with HMRC is something we’ve been doing for many years, so it may help your case to have us doing so on your behalf.
Does HMRC Check your Bank Account?
Despite not having preference over other unsecured creditors, the law changed in April 2014 to allow HMRC to seize tax that is owed from an individual or company bank account. 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.
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.
Can HMRC Write off Debt?
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.
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 08000 746 757 or use the live chat to get in touch. Our email address is [email protected]