Struggling with an unpaid HMRC bill can be a common problem for businesses. Paying off these debts can sometimes become a mounting worry and have a detrimental effect on the business. HMRC will take a serious look as to why you’re late, or unable to pay your tax bills. For a lot of businesses, it tends to imply that there is something fundamentally going wrong, which could lead to the business’s downfall.
Once HMRC has established that your company is indeed unable to pay the outstanding balance on time and in full, they will take a look at whether or not your business is viable. For limited companies, this can sometimes lead to insolvency, and for sole traders, bankruptcy.
What HMRC bill are you unable to pay
Getting into debt with HMRC is a common problem, and a business could be hit with different tax bills at different times.
HMRC take VAT very seriously as a tax debt, failing to file HMRC VAT returns in date can leave you open to receiving a surcharge which will only increase debt burdens. Large arrears are a clear indicator of cash flow problems and sometimes insolvency. This could lead to HMRC digging further into the company’s tax affairs.
A lot of businesses have trouble with VAT issues as they struggle with tax inaccuracies, especially around the VAT threshold. Company accountants have trouble recognising when they should register and deregister for VAT, which in turn causes issues around the amount of VAT a business thinks it owes.
If you are struggling with VAT arrears, it’s essential to talk to HMRC and have clear lines of communication. If you’re unsure about the best way to move forward, Wilson Field has a huge amount of experience in negotiating with HMRC.
If you’re having trouble paying PAYE and National Insurance on time, then the tax penalty regime can make the situation much worse and put you into further trouble. PAYE penalty amounts increase over a tax year, depending on the number of defaults, HMRC will charge interest on overdue amounts from the due date to the date the business eventually pays.
What happens if I can’t pay HMRC?
Not paying tax to HMRC is a very serious issue and they will take every action possible to make sure debts are repaid. The business will first receive a set of threatening letters, with the idea that you take them seriously. HMRC is responsible for winding-up more companies and bankrupting more sole traders than any other creditor.
HMRC will first send a county court summons. If you can’t contest the debt, it will be proven in court, and if the business can no longer pay the debt, it’s a clear indication that the company is insolvent. For a limited company director, any trading while in this situation could result in personal liability accrued during this period. A business needs to respond within 14 days to a county court summons, before potentially ending up with a County Court Judgement (CCJ).
If it comes to a CCJ, the business is in a precarious position as HMRC have proved by law that the debt exists, having a very negative effect on the company credit rating. HMRC can then proceed to wind up the business and issue a winding-up petition.
HMRC do have the power to serve a ‘distraint order notice’ which can be used to seize business assets or stock. They won’t take items that stop the business from working, ‘tools of the trade’, but any assets or stock deemed redundant could be taken. After receiving a distraint order notice, there are typically five days before HMRC come to collect goods. If you are the director of a limited company, bailiffs cannot collect personal items; however, sole traders are personally liable for company debt, so could have personal assets collected.
What are my options?
We have some great experience when it comes to helping businesses with HMRC and paying tax arrears. We can advise you on the best possible solution for your circumstances and the most efficient way to negotiate with the tax office.
Negotiate time to pay
A Time to Pay Arrangement is an agreed plan with HMRC, which allows a business to pay off its tax bill over a period of time. The business must first demonstrate that they can keep up with payments.
The period of repayment may vary, and it is common for HMRC to allow a period between three to six months for the business to repay the balance. Occasionally, a business may be able to come to an agreement with HMRC for the arrangement to potentially last up to 12 months. Even when in a TTP, interest will continue to be charged on any overdue amount.
Coming to an arrangement and negotiating repayments terms can be a very difficult procedure. Wilson Field has a huge amount of experience when it comes to making deals with HMRC; we speak with them every day and can negotiate on your behalf. With our help, we can get you the most efficient deal, that works for both parties.
If you have debts to parties other than HMRC, or you’ve previously had a Time to Pay Arrangement which has failed or been refused, there are other debt-relief options available.
Company Voluntary Arrangement (CVA)
For owners who feel their business is genuinely profitable, a CVA could be a viable option. If you want the business to work and continue trading, but HMRC and other creditors are coming after you, a CVA could be the best way to move forward. With expert help, we can help you negotiate the best way to repay HMRC and other creditors through a CVA.
The procedure would allow a business to distribute money to creditors on a pro-rata basis, and importantly, give you a chance to save the business.
Individual Voluntary Arrangement (IVA)
For sole traders who can’t pay their bill to HMRC, or who are struggling with creditor pressure, an IVA could be a route forward. If you believe trading is still a viable option, but need a manageable way to pay back HMRC and other creditors an IVA can offer that solution. Just like with a CVA, we give you expert advice on coming to the best possible arrangement with creditors for manageable repayment terms.
Creditors Voluntary Liquidation (CVL)
If your company can’t pay its bill to HMRC, it usually means something within the business isn’t quite right. If you have other creditors breathing down your neck, it might be time to think about a CVL. We can offer you expert advice to help guide you down the best path for your business.
A Creditors Voluntary Liquidation (CVL) is regarded as an insolvency procedure; however, it doesn’t mean the business has to completely ‘shut up shop’. A CVL is the most common form of insolvency and is used when creditor pressure is unbearable, but once the liquidation process has begun directors are able to acquire company assets at market value to form a new company and continue trading in the same sector.
Companies wishing to enter a Pre-Pack arrangement must prove it would be in its, and the creditors’ best interests as opposed to other insolvency options.
Keeping up with your HMRC tax bill can be difficult, and the tax office will do everything they can to get their money back. Sometimes it’s a sign that there are bigger problems within the business, so it’s important to tackle the issue head-on and not bury your head in the sand; otherwise, the problems could get much worse.
How we can help
If you find yourself in a position where you are behind on payments, or unable to pay your HMRC tax bill, there are options available to you. We can work on the best solution to you, whether that involves arranging a Time to Pay Arrangement, a Company Voluntary Arrangement (CVA), or another procedure more tailored for your circumstances.