We tend to think about tax disputes regarding the inevitable legal action that will be taken to reclaim significant PAYE or VAT arrears liabilities; but in reality, the court room process is just one aspect of a dispute with HMRC.
By the time the process reaches this stage, it is likely the dispute will have been rumbling on for months, and in some cases even years, with a number of opportunities missed to reach a satisfactory conclusion.
The stress of a legal case on a business owner should not be underestimated. If the case cannot be won i.e. you cannot prove that HMRC has miscalculated the VAT and PAYE liabilities, the best strategy to remove this stress and worry is to try and reach a negotiated repayment schedule.
In this article, we’ll take a look at a few of the best ways to negotiate a tax settlement with HMRC over a tax debt. We’ve helped companies negotiate settlements with HMRC for unpaid VAT and PAYE worth a combined £1.2million in the last two months, saving both companies from being wound up and rescuing 96 jobs. The point is we are in a position to offer advice.
How to negotiate a Tax Debt with HMRC
In the past, HMRC inspectors were given discretion to assist small business taxpayers who were struggling to pay VAT and PAYE liabilities and reach a sensible conclusion. Sadly, this is no longer the case. A recent survey of tax professionals at 25 companies found that less than a quarter were able to resolve a dispute with HMRC through discussion and settlement. In general, HMRC is now less flexible and pragmatic.
However, as we have found in recent months, it is still possible to negotiate settlements for significant VAT and PAYE liabilities, but understanding exactly what HMRC expects from settlement negotiations really does pay.
My experience tells me the vast majority of directors, and sometimes even experienced accountants are operating out of their comfort zone when it comes to negotiating significant VAT/PAYE arrears. By significant, for example, more than £250,000, this is for many reasons. Practically if the PAYE/VAT arrears are this size, then there will usually be a financial director involved, and they are under immense pressure and mistakes often occur simply due to stress.
Often accountants have been left to manage HMRC in isolation which is unfair to the accountant and demonstrates the ignorance of the director. Inevitably when things go wrong, these situations result in finger pointing but there is one simple reality. One piece of advice I would give to every director and that is, remember who is accountable, not responsible for bad advice to a company. The law and HMRC are very clear on the matter – the director will be held accountable irrespective what errors have been made.
New compensation rules for creditors come into force October 1st, 2015 allowing creditors to seek compensation from disqualified directors. My bet is HMRC will seek more disqualifications for mismanaged HMRC tax debts.
If your business receives threatening letters from HMRC about tax arrears you are unable to repay, here’s what you should do:
1. Try to negotiate an HMRC Time to Pay agreement
If you’re unable to pay the tax liability upfront, organising a face-to-face meeting with a tax inspector to arrange a longer period to clear the debt should be your priority. If you are unable to arrange a face-to-face meeting, you should speak to the tax inspector on the phone.
The basics of the negotiations are you will only get a maximum of twelve months t repay and very often far less than this. There are exceptions to this rule but they are extremely rare.
You need to reach an agreement with HMRC on the amount of tax there is to be repaid and decide on a realistic period in which to do so. When considering the level of payments you can afford to make, you should also think about future tax payments, as they will also need to be made during this period. Do not overcommit your company irrespective of HMRC pressure to do so this will only adversely affect you later.
The most common cause of a time to pay failure is not taking into account other due or recurring taxes. If a default occurs, HMRC will not take kindly to this and will often take legal action and wind the offending company up. You should help immediately on 08000 746 757 if this happens.
You should prepare as much as possible for this meeting, and make sure you have any documents that might be relevant, including evidence of extenuating circumstances and tax debt forms. If you think HMRC has made any errors when calculating your tax debt, mention them during this meeting. You will also need to provide documentation as proof of any discrepancy.
HMRC will also want to see proof that you can repay what you say you can – and just as importantly what you are doing to make sure the same problem does not happen in the future.
It’s also worth noting that if you have made any errors you must raise them with the officer – do not hide any mistakes. The penalties will be increased dependent on the degree of complicity in covering up.
You may meet a Field Officer who will also be assessing what assets you have – just in case. If the debt is over £100,000 then they will need to refer the matter to their HMRC superior usually a manager.
2. Negotiate an HMRC settlement
If your Time to Pay proposals are refused, negotiating a settlement is your next best option. In this meeting, you will be quizzed about the company in detail, so you should be prepared to respond to questions relating to the company’s financial status, legal organisation, past tax debts and more.
HMRC’s tax collectors can only act on the information they are given, so it’s important you divulge all the facts. No two businesses are the same, but HMRC is advised to treat each organisation reasonably, so approaching this process in the right way will play a big part in achieving the right result.
As some of the UK’s most experienced HMRC mediators, we can help
A lot of companies talk about negotiating settlements with HMRC for significant amounts of VAT/PAYE, but in reality, it’s something only a very select group of companies can do. The trouble is that some insolvency practitioners are more experienced at closing company’s not saving them, so negotiations are not within their comfort zone.
At Company Debt.com, we have as much success with HMRC as anyone and better than the majority, and many have been threatened or even served with Winding Up Petitions. In the vast majority of cases, we were able to rescue 85% and negotiate settlements with HMRC.
To discuss your VAT and PAYE arrears in confidence call 08000 746 757 for immediate help and advice – no strings attached. Any initial consultation is free of charge and could be the first step in resolving your tax debt problems.