“We have received some threatening letters from HMRC; what can we do? Can you provide advice and help for HMRC related concerns?”
HMRC Threatening Letters & HMRC Related Problems: Advice for UK Directors
Without a doubt the number one concern that gives directors more sleepless nights than any other subject it is the threats received from HMRC. HMRC have had their critics for the content of some its letters sent to directors and individuals often linking personal and limited company debts.
By confusing the two issues they imply actions for one that can be misinterpreted for the other.
For example threatening to “seize family possessions” when it is a company debt is clearly legally wrong but nevertheless it can have the effect of applying fear to an already very stressful area.
So what are the typical threats, related processes and time-scales for those having HMRC tax problems?
And to be absolutely clear, you should never dismiss HMRC’s threats as they have massive resources behind them to make your life very uncomfortable.
If you owe taxes then you should do everything in your power to repay them as quickly as is possible, but if you are struggling and need help then read on.
First of all it is Worth Understanding HMRC’s Role
This quote from the HMRC website says it all:
“HM Revenue & Customs (HMRC) is responsible for making sure that money is available to fund the UK’s public services and expects people to pay their tax in full and on time.”
The more obvious implication here is the collection of taxes what is not explicit but has been made clear by HMRC actions is the “will of HMRC to make an example to tax paying public of those who avoid paying taxes”.
Practically it is important to understand the mind-set of HMRC will be seen as intransigent sometimes if they have ‘lost confidence’ in your ability to pay arrears.
This loss of confidence may have been caused by a failed time to pay arrangement for example and once this has happened HMRC will almost certainly want all the money paid at once.
You must understand HMRC will either collect the taxes you owe within a given timescale or they will make you bankrupt if a sole trader or wind up (compulsorily liquidate) your company up if a limited company.
If you cannot pay your taxes, you should speak to HMRC first to see if you can negotiate a payment arrangement of some kind.
However, if you cannot come to an agreement, what options do you have when facing HMRC threats via threatening letters for unpaid taxes?
There is a range of threatening letters that HMRC often use and the key aim is, of course, to get you to act.
Any threat from HMRC should be taken seriously, not least as they are responsible for winding up more companies and making more sole traders bankrupt than almost everyone else put together.
It is also worth remembering that the onus is on you to disprove HMRC’s claim for outstanding taxes that are due.
Yes, you can appeal and ask to attend a tribunal, but the odds are stacked against you if you do not have a clear audit trail of paperwork to support your case. So what are the typical HMRC threatening responses when it comes to collecting overdue taxes?
HMRC Time to Pay
We’ll we have assumed that you have exhausted the Time to Pay option as unless there are exceptional circumstances HMRC will only allow a maximum of 12 months to repay any tax owed. If their patience has worn-out, they may go to County Court or issue a Statutory Demand to at least partly prove the debt in law.
The County Court process takes 28 days in total – 14 days to contest or agree a settlement of the debt and then if no settlement 14 days to pay in full.
The Statutory Demand takes 21 days in total 18 days to contest or reach a settlement and then 3 days if no settlement is agreed to pay in full.
You should never, ever ignore either of these actions as doing so will have very serious implications for you. Ignoring the debt will merely serve to prove the debt in law.
Either of these legal processes also has the effect of proving insolvency in law and can make accusations of wrongful trading prosecution easier.
HMRC Threats of a County Court Summons
The bad news here is that HMRC are trying to partly prove the debt in law and if you do not, or cannot contest the debt it will be confirmed and proven in court. You should also be aware that if you can still no longer repay the amount in full, this would be proof that the company was insolvent. If you are a limited company director this should be taken very seriously as trading after this event could be used as proof you traded irresponsibly if the company debts increased. The director can be made personally liable for the debts accrued in the period between proven to be insolvent and the company ending in an insolvent liquidation.
Do not ignore the claim and you must respond within 14 days, if not, you could end up with a County Court Judgement. You could ask for a further 14 days, giving you a total of 28 days to settle or agree terms in full.
HMRC Threat of a County Court Judgement
If HMRC have progressed to this stage your situation is getting more serious as the debt has now been proven by law and you have still not paid the debt. You can still resolve the situation by paying in full and having the judgement removed and ‘set aside’, but this must be done within 30 days of the judgement being received. The further bad news is that the company credit rating will be adversely affected, also. Again, this is proof that the company is insolvent and can be now, legally, be wound up by a creditor, in this case, HMRC (Debt Management Department.)
HMRC Threats of a Distraint Warrant
This kind of action can cause real disruption to the business as the ‘distraint order notice’, or ‘possession order’ can be used to seize assets and stock, but be aware that HMRC do not need a warrant if they choose to use their Crown Field Officers. It is also worth noting that there are exceptions and they will not normally seize assets that will stop your business from trading, however, this has been known to happen so be on your guard. Exceptional items are described by HMRC as the “tools of your trade” so in other words HMRC does not want to stop you from working.
Typically, the time-frames at this stage are usually 5 working days and are given before assets will be seized. They may also send a Field Officer to assess your individual situation and they will usually give one more chance to pay the taxes owed. Typically the possession order will be a list of your company assets but they cannot take goods/assets on hire purchase or lease or where there is ‘retention of title’ so ownership is not your company’s. HMRC cannot take a car owned by you personally against a company debt for example but you will need to prove these facts so if you are under threat – keep relevant documents handy.
HMRC Threats of Bailiff Action
Most people shudder at the thought of having a bailiff turn up at your premises for a tax debt. Apart from the embarrassment factor to management, staff and or customers alike the fear factor raises markedly. Assuming the tax debt is a company debt then your personal assets should not be taken in lieu of a company debt. You will be expected to prove who owns what so keep relevant documents to hand when threatened by HMRC. There is no hard and fast rule when dealing with HMRC tax debt bailiff action but in principle if you owe HMRC taxes they can take assets to the value of the debt owed. The problem is at auction what goods are taken for sale will fetch a fraction of what is actually owed.
No bailiff from a county court or a sheriff from a high court can lay a hand on you or force entry without a court order. A bailiff or sheriff can however make ‘peaceful entry’ through an open window, or if you allow them access to use your toilet.
Your debt may be referred to a private debt collection agency and they can include either of the following agencies to pursue some debts on HMRC’s behalf:
- Advantis Credit Ltd
- Apex Credit Management Ltd
- Bluestone Credit Management Ltd
- Commercial Collection Services Ltd
- Sigma Red (formerly known as Commercial Credit Services Group)
- Credit Solutions Ltd
- Drydensfairfax solicitors
- Equita Ltd
- Fredrickson International Ltd
- Akinika Debt Recovery Ltd
- Rossendales Ltd
By a long margin the threat of a winding up petition should be taken extremely seriously as there is no company threat greater than this. The winding up petition will mean the closure of your company by a compulsory liquidation. The compulsory liquidation is overseen by the official receiver who works for the insolvency service which is a government department. So, in a nutshell you are forced into compulsory liquidation by two very serious government departments. There is no greater threat to a company and possibly the director/s.
Once a winding up petition has been ‘served’ to your company you will have seven days before the ‘petition’ is advertised in the London, Belfast or Edinburgh gazette dependent on where the trading address is. The gazette is a government record of all insolvency actions in the UK and is available to and used widely by banks and credit rating agencies. Once your bank sees the petition against your company your bank account will be frozen and you cannot take money or out of it. Once the petition has been served you also cannot move or sell assets from the company so continuing to trade becomes a nightmare and normally ceases to trade. Assuming the directors wanted to continue to trade you can do so when threatened with a petition and in some cases after the petition has been issued but directors must seek professional insolvency advice immediately.
If you have received a winding up petition threat call 0800 074 6757 to speak to someone who can help.