Help With HMRC Tax Problems

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.

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

What Is A Time To Pay Arrangement?

A time-to-pay (TTP) arrangement is a payment plan with HMRC that spreads tax payments over a longer period of time than is normally available.

In addition to Corporation Tax, VAT and PAYE arrears, time to pay arrangements can also be used when directors anticipate cash flow problems with upcoming payments and it may help the company to avoid a late payment penalty if they miss the deadline.

HMRC will always want to make sure that directors are not deliberately trying to avoid meeting their tax obligations. Therefore, it will consider every arrangement on an individual basis, as well as the industry the business operates within and the company’s history of tax repayment.

Does HMRC Give You Time To Pay?

When HMRC is satisfied that the company is not trying to avoid its tax liabilities, it will agree to a time to pay arrangement, assuming there isn’t one already in place. They have become increasingly flexible around this since COVID-19.

At this point, it’s vital that directors are realistic about what the company can afford before the plan is agreed, so that these payments are met in full on time for the duration of the arrangement.

If the company should default on a payment, its financial woes will worsen very quickly. HMRC could cancel the TTP arrangement all together, call in the total debt with penalties or make a move to wind up the company.

In contrast, when a TTP is agreed and kept to, interest is charged on the amount to be paid but penalties may be lifted if the company has made contact with the tax authority promptly and acted responsibly to rectify the financial situation.

How Long Will HMRC Give Me To Pay?

Time to pay arrangements are typically up to 12 months but can go up to 24 months in certain cases.

What Information Do You Need To Agree A Time To Pay?

Before speaking with HRMC you should have:

• any recent letters they’ve sent you with reference number
• clear documentation about how much you owe HMRC
• proposal about how much you feel you can pay them, over what timeframe
• make sure you’ve submitted all recent tax returns (they ask why, if not)

Negotiating Time To Pay With HMRC

Companies that are facing temporary cash flow problems and may not be able to meet their tax liabilities can often benefit from the experiences of a HMRC mediator.

HMRC are open to negotiation but this needs to be done in the right way and of course it helps to have the assistance of someone used to dealing with them.

In broad terms HMRC want the economy to be strong and that means keeping as many businesses from insolvency as possible. That said, they generally take a very tough stance if they feel people aren’t being honest or organised with them, and on occasion will wind up a company even at a loss to themselves in order to make an example.

How To Arrange A HMRC Time To Pay Agreement

Set up a TTP online for self-assessment here or call 0300 200 3822.

For limited companies, you’ll need to contact HMRC’s Payment Support Services on 0300 200 3835 (Monday to Friday, 8am to 4pm)

Can HMRC Refuse A Payment Plan?

Yes, HMRC might refuse your request for a payment plan. Typical reasons include if:

• They don’t feel you can pay
• They don’t feel like you’re being honest with them
• You’ve recently had another payment plan
• You are already insolvent

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 to 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?

In most cases, directors are not responsible for tax arrears, as these debts are those of the company and not the individual. However, there are some circumstances in which you may be personally liable.

The Finance Act of 2020 made directors liable via the use of a joint liability notice under certain conditions.

• Where a director has had multiple insolvencies involving outstanding taxes
• If a new company, within five years of a previous liquidation, becomes insolvent with taxes owed and the same director

Personal liability may also be considered in cases of:

• misfeasance
• wrongful trading
• fraud
• ‘preferential’ payments after a director realised the company was insolvent
• tax evasion

Wrongful Trading

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.

Fraud or Neglect

HMRC does have powers, however, to make directors personally liable for VAT, PAYE, National Insurance contributions and corporation tax arrears where they detect the presence of fraud or neglect.

One common example of this would be a director who continues to pay their own salary while deliberately not paying HMRC, despite suspecting that the company is officially insolvent. Another example might be paying one connecter party, such as a family member, while not paying HMRC what is owed.

How to Deal with HMRC Tax Problems 

1. Plan the cash-flow of the business well in advance so you can identify problems before they occur
2. Always ask for help before tax arrears build up
3. Seek short-term finance options to free up the capital to pay your tax bills
4. Ask for time to pay the debt if you know you won’t be able to make the payment in full and on time
5. Consider a company voluntary arrangement (CVA) that will allow tax debts to be partially written off
6. Enter into administration or pre-pack administration to protect the business from enforcement action while you restructure or sell the business
7. Use a creditors’ voluntary liquidation to close the business down if it’s no longer viable

What To Do If You Can’t Pay VAT

HM Revenue and Customs (HMRC) are more aggressive about unpaid VAT than any other tax because they view it as their money.

Businesses are essentially collecting VAT on behalf of the government, and it is always the property of HMRC, even though it temporarily passes through private corporate bank accounts. As such, HMRC has a rigorous penalty and escalation system in place to recover unpaid VAT.

Consequences of Not Paying VAT

If HMRC does not receive a VAT payment from your limited company by the due date, you will be considered in default and incur late payment penalties and interest on the unpaid amount.

Initially, you will receive an automated letter, but your case will be flagged for manual review at a certain point.

It is common for directors to panic when they are unable to pay VAT, and they may simply bury their heads in the sand. However, you must resist this temptation. Whatever happens next, you need to keep a clear head and take immediate action.

If you feel overwhelmed by the situation, seek advice from a licensed advisor. We are here to help.

Can’t Pay VAT: Options For Directors

If you can’t pay VAT, you have three options:

1. Ask HMRC for a Time to Pay (TTP) arrangement. This allows you to repay what you owe in manageable instalments over a period of typically 12 months.
2. Obtain finance to pay what you owe. You may be able to get a loan from a bank or other lender to cover your VAT bill.
3. Close the company via a voluntary liquidation. This means that the company’s assets will be sold, and the proceeds used to pay off creditors, including HMRC.

Consult an Insolvency Practitioner about options such as Administration or a Company Voluntary Arrangement (CVA). These are formal insolvency procedures that can help you to restructure your business and avoid liquidation.

Setting Up The Online VAT Payment Plan Service

Setting up a VAT payment plan online is a streamlined process introduced by HMRC since 31st May 2023 for businesses facing difficulties in paying their VAT bills. To be eligible for this online plan, your business must meet certain criteria:

• The most recent VAT return must be filed.
• The VAT debt should not exceed £20,000.
• The arrangement needs to be set up within 28 days of the payment deadline.
• You should not have other payment plans or debts with HMRC.
• The VAT debt must be settled within six months.

Businesses not eligible for the online VAT payment plan include those in the Cash Accounting Scheme, Annual Accounting Scheme, or making payments on account. If ineligible, contact HMRC directly to discuss payment options, potentially involving business or personal funds.

Non-payment of VAT incurs penalties: late VAT returns lead to penalty points and a £200 fine after a certain threshold, while late VAT bill payments attract interest and additional penalties based on the delay duration.

What Happens If I Can’t Use The Online Service?

If you can’t use the online service for a VAT payment plan, you must contact HMRC directly.

During this interaction, you’ll discuss your business’s financial situation and negotiate a bespoke payment plan. This process involves providing detailed financial information and may require using business or personal assets to cover the VAT owed.

Only business owners or authorised representatives can formally set up these plans with HMRC.

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 info@businessexpert.co.uk for free and confidential advice from an insolvency practitioner. 

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