With HMRC under pressure to collect more tax owed, it is moving away from the tolerance shown during the pandemic and back towards a normal level of debt enforcement activity.
Instances of company winding up petitions being instigated by HMRC are increasing, and although the tax gap (difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid) has declined in recent years, it is still 5.2% or £32bn. HMRC’s recent use of winding-up petitions to chase money it is owed comes at the worst possible time as many companies struggle to cope with inflationary pressures, higher interest costs and reduced consumer spending. HMRC’s aim is to recover tax owed from a company’s liquidated assets.
Insolvency protection was introduced for businesses during the pandemic to prevent creditors, including HMRC, from issuing winding-up petitions against companies with unpaid debts.
However, restrictions on winding-up petitions were relaxed on 1 October 2021 and then removed on 1 April 2022. Companies with unpaid tax bills should therefore be aware of the possibility of receiving correspondence from HMRC that threatens a winding-up petition.
Time-to-pay arrangements
For a company experiencing difficulty paying its tax liabilities, the best way forward is to agree a time-to-pay arrangement with HMRC. This avoids the possibility of a winding-up petition, although early engagement with HMRC is essential.
An affordable, regular monthly payment will be agreed based on the specific financial circumstances of the company. A good approach is to not be overambitious with the monthly repayment value, so there is less chance of being unable to meet future payments.
HMRC will want to know about the company’s financial prospects (cashflow forecasts and budgets may be required), what efforts have made to raise funds, and what has been done to try and pay tax liabilities.
The arrangement is designed to be flexible, so the monthly payment can be adjusted over time.
Prior to agreeing to a time-to-pay arrangement, HMRC may want to see company assets released, with the funds raised used to repay tax. This might mean selling vehicles, increasing business borrowing or directors putting personal funds into the company.
HMRC’s guidance to paying a debt with a time-to-pay arrangement can be found here.
If you need help in agreeing a time-to-pay arrangement with HMRC, or on any other tax matters, contact us.
