Last year, HMRC applied for 3906 winding up petitions in order to recover unpaid tax from businesses, according to latest research from business finance supermarket, Funding Options. This is a 12% rise on the previous 12 months when only 3485 applications were filed against UK businesses.
Of those 3906 applications made in 2016, 2065 were successfully obtained which is again up from 2015’s number of 1944. When HMRC’s application is successful in obtaining a winding up order from the court, the business it has been issued against will be forced to close with its assets liquidated to pay the outstanding tax bill(s) and HMRC will become the preferential creditor.
This news comes despite an economy which has held up well, to the surprise of many, over the last year indicting that some businesses are still dealing with challenges to their cash flow. It also seems that these challenges are making themselves known when major deadlines for tax, including VAT and corporation tax, come around.
Currently the government is backing away from the ‘time to pay measures’ HMRC brought in a few years ago in order to support businesses struggling with their cash flow. Businesses were taking advantage of the time to pay arrangement option regardless of the fact that many could not afford it. As a result, HMRC received a backlash for keeping too many ‘zombie businesses’ alive artificially.
HMRC and the government have now changed their focus to collecting as much outstanding tax as possible and that has seen them become much harsher in their actions towards many businesses. This doesn’t just include the issuing of winding up petitions but also sending in of bailiffs and agents to businesses who they see as asset rich to take walking possession of their assets.
Despite HMRC’s tougher stance on businesses who owe tax, it is still possible to negotiate with them. If you have a viable business and you can prove this to them, they are likely to support a time to pay arrangement.
However, these big bills with an unsecure cash flow are always likely to cause problems for small businesses who struggle to obtain loans and overdrafts as a result of tough lending criteria from banks. For many businesses, these loans are used as a short term measure to cover tax bills and keep businesses from falling under the strain of multiple liabilities.
As traditional lending becomes more difficult to obtain, many small and medium sized businesses are turning to alternative lenders to plug the gap and see them safely through their cash flow lulls. Lenders who offers factoring, asset finance and peer to peer lending are more likely to take risks on smaller businesses but they will usually ask for some additional security, such as a personal guarantee.
As a result, alternative financing can become a risk for some business owners and if your business really is struggling to meet its tax liabilities and/or any other business liabilities, then financing may only prolong the situation you are in. If this is the case, speak to one of our advisers.