Do you have HMRC tax arrears and company debts that you’re struggling to repay?
Perhaps you want to negotiate the repayment of your debts with HMRC but are not sure how the process works?
In this guide, we’ll cover the HMRC tax problems businesses and company directors commonly face to help you find a solution.
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HMRC Tax Problems are Common
Having any sort of issue with HMRC is a stressful situation to find yourself in. However, it might bring you some solace to know that HMRC is by far and away the most common creditor for struggling businesses in the UK.
Some of the most common HMRC tax problems for company directors to experience are:
- VAT arrears
- PAYE and National Insurance payment problems
- Corporation tax debts
- Visits from HMRC debt collectors
- HMRC tax surcharges
- Personal liability issues for company tax debts
With tax arrears being such a common problem, there are some well-trodden paths you and your business can take to resolve the situation.
The most important thing you can do is to act quickly and take proactive steps. Reading this article is the first step along that road.
HMRC Payment Problems
If you’re struggling to make an HMRC tax payment, you must take action to deal with it. The longer you leave it, the worse the problem will become.
Over time, payment penalties and interest will be added to outstanding tax debts and HMRC will take enforcement action against you.
The risk of unexpected tax payment problems can be reduced by effective cash-flow forecasting and control, so you must keep your financial forecasts up to date. If the tax payment problem is indicative of a more serious problem with your business, you should take advice on business insolvency, with potential solutions including a company voluntary arrangement or a creditors’ voluntary liquidation.
HMRC tax problems can be a temporary blip, perhaps the result of a seasonal dip in cash-flow, or be symptomatic of more serious issues with your business. If your business is fundamentally sound, you should explore different methods of raising the money to pay your tax bill. That could be through:
- Delaying non-essential expenditure
- Tightening control of your working capital
- Exploring your short-term finance options
HMRC will need to be convinced that you cannot pay your tax bill before it’s willing to negotiate repayment of the debts with you. That’s why you should always explore other ways to raise the money first.
HMRC Tax Problems: Negotiating Time to Pay
If you have a tax problem that you cannot solve by cutting costs or raising finance from external sources, you should contact the HMRC business payment support service on 0300 200 3835 as soon as you can.
This service is for businesses who know they will not be able to pay a tax bill before the payment deadline. If you have already received a payment demand for a missed payment, you should call the number on the demand to speak directly to the HMRC office that issued it.
If HMRC believes you are unable to pay the bill in full now but will be able to do so in the future, you may be able to negotiate a ‘Time to Pay’ arrangement with HMRC.
Overdue tax payments will be collected via direct debit, typically for a period of 12 months, until the debt has been cleared in full. That can give you the financial breathing space you need. As long as you contact HMRC before late payment penalties and interest charges are incurred and stick to the payment schedule, you should not incur any further charges.
What Legal Action Can HMRC Take Against Unpaid Debts?
As one of the UK’s most common company creditors, HMRC has an efficient and far-reaching range of powers that it can take against businesses, and in some exceptional circumstances, even the company directors themselves.
If you have HMRC tax arrears that you cannot afford to pay and you are unable to negotiate a repayment agreement with HMRC, it can take the following escalatory legal action against you:
(1) Payment demand
Receiving a payment demand from HMRC is not a pleasant experience. The letters are threatening in tone and explain the action that could be taken if payment is not made. If you are unable to pay the bill in full, even a nominal payment will show HMRC that you are committed to clearing your tax debts and may buy you some time.
If you’re unable to make a payment towards your tax debts, you should contact HMRC immediately. Keeping them informed will help to show that you’re not simply ignoring the debt and that may be enough to prevent your case from being escalated to the next stage.
(2) HMRC debt collection agencies
The next step in HMRC enforcement action is for your tax debt to be passed to a third party debt collection agency. These are the debt collection agencies used by HMRC. An HMRC debt collection agency must send you a letter before turning up at your door. And, if they do knock on your door, they cannot enter your premises without having express permission or a court order to do so.
Once the debt has been passed to a collection agency, you should pay the amount owing directly to the agency. You should ensure the details provided by the collection agency are correct and contact HMRC immediately if there is any dispute about the figures. If you can show that the company is unable to repay the debt, the debt collection agency may be willing to accept a payment plan via instalments.
(3) HMRC Enforcement Notice
If the debt has still not been repaid despite several warnings, an enforcement notice will be served against your business. Formerly known as a distraint warrant, this notice allows bailiffs acting on behalf of HMRC to seize and sell company assets to settle the debt under the Taking Control of Goods Regulations.
You must be given seven days notice before the bailiffs can attend your business. Even then, they will not be able to seize goods immediately. Instead, they will be noted in a ‘seizure list’ that you’ll be asked to sign. You’ll then usually be given time to raise the funds before the assets are seized and sold. Any visit from a bailiff will incur costs that will be added to the debt you owe.
Unless the bailiffs are high court enforcement officers with a warrant signed by a judge, they will not be able to force entry into your company. Even then, high court enforcement officers can only force entry if they have previously entered your premises and drawn up a list of goods to be removed.
(4) Statutory Demand or County Court Judgement (CCJ)
If the debt cannot be collected by bailiffs, HMRC will escalate its action by issuing a statutory demand or making a claim in the county court. The action HMRC chooses to take will depend on the lateness of the payment and the amount owed. Either way, you will be given plenty of time to respond to the statutory demand or the CCJ and make the payment or negotiate terms to settle the debt.
If you don’t repay the debt in full, come to a repayment arrangement or apply to have the demand set aside within 21 days (statutory demand) or 14 days (a CCJ), HMRC can apply to wind up your company. That’s why you absolutely must not ignore this type of action.
(5) A Notice of Requirement of Security
HMRC can issue a company with a Notice of Requirement (NOR) of Security when it believes it has failed to meet its VAT or PAYE obligations and believes there’s a risk the company could do the same in the future. This is a very serious position to be in because the Notice of Requirement can be transferred to the company directors or other individuals named in the NOR personally. That could put your personal assets at risk.
The security must be provided before a date that will be stipulated in the notice. Continuing to trade after that date is a criminal offence, the penalty for which is a hefty fine.
(6) Winding up Petition
If you fail to respond to the statutory demand or county court judgement, HMRC will be able to issue a winding up petition against your company. This is as serious HMRC tax problems get. You will have just seven days from the date the petition is served to prevent it from being advertised in the London Gazette. Once the petition has been advertised, company bank accounts will usually be frozen and other creditors can piggyback on the same petition to close your company and force the repayment of your debts.
Once the winding up petition has been advertised, there’s only a seven-day window before the winding up order is made. At this point, a liquidator will be appointed to close down your company and sell its assets for the benefit of HMRC and your other creditors.
Can HMRC tax Problems Lead to Personal Liability Issues?
If you have tax debts that you’re unable to repay, that’s a clear sign that the company is insolvent. Continuing to trade while the company is insolvent and doing nothing about the outstanding debts and the problems it faces can lead to accusations of wrongful trading.
Wrongful trading can be a real problem if tax arrears are allowed to build up and the company subsequently enters insolvent liquidation. The result could be that company directors are made personally liable for the company’s debts. Failure to pay National Insurance contributions could also lead to a personal liability notice from HMRC.
To protect yourself from the potential risk of personal liability, you should take advice from the experts, keep notes of any decisions the company makes and write down the names of the people you speak to at HMRC. The most important piece of advice, however, is to act promptly. Trying to delay the situation and burying your head in the sand will simply cause more problems for you as a company director.
How to Deal with HMRC tax Problems
- Plan the cash-flow of the business well in advance so you can identify problems before they occur
- Always ask for help before tax arrears build up
- Seek short-term finance options to free up the capital to pay your tax bills
- Ask for time to pay the debt if you know you won’t be able to make the payment in full and on time
- Consider a company voluntary arrangement (CVA) that will allow tax debts to be partially written off
- Enter into administration or pre-pack administration to protect the business from enforcement action while you restructure or sell the business
- Use a creditors’ voluntary liquidation to close the business down if it’s no longer viable
Do you Have HMRC tax Problems?
Non-payment of tax is a very serious issue that could lead to legal action from HMRC, the closure of your business and personal liability issues. You need to act quickly and responsibly to deal with this threat. Please give us a call on 0800 24 24 51 or email email@example.com for free and confidential advice from an insolvency practitioner.