A recent report by the National Audit Office has revealed that arrears of unpaid taxes to HMRC have increased from £16bn in January 2020 to £42bn in September 2021. The impact of the pandemic has left many business owners struggling to pay their taxes and, if business recovery is slow, these debts will only continue to build.
Although the Government instructed HMRC to go easy on business while the economy recovers, the fact is that HMRC will still need to collect these debts. The NAO report has clearly increased pressure on HMRC to accelerate the reduction of tax arrears, which is bad news for embattled businesses right across the economy.
Seeing a growing tax debt burden on the balance sheet is a distressing situation for business owners. However, solutions are available, especially if the problem is confronted as early as possible. What is key is not to ignore the situation, as the consequences can be stark. Here, we outline what that may look like, as well as what practical steps you can take to address your business’s HMRC arrears.
How does HMRC approach debt recovery?
HMRC will give business owners a number of opportunities to pay their business’s taxes, but, if this is repeatedly ignored, HMRC will take serious action to recover the debt.
Initially, you will receive payment reminders and then a ‘final opportunity letter’ that, if not heeded, will lead to enforcement action. At this stage, HMRC can instruct bailiffs to inventory, seize and then sell whatever assets it requires to settle the debts. If this process does not yield enough to satisfy the debts, HMRC will escalate the matter with legal action against the company. Under certain circumstances, the directors can be made personally liable to pay tax arrears.
Lastly, if tax debts remain unpaid, HMRC can apply for a Winding Up Petition to compulsorily liquidate the business, although only if the debt exceeds £10,000 and subject to an initial 21-day cooling off period during which proposals can be made to settle the debt.
Unlike other creditors, HMRC do not have a time constraint on chasing a debt, so seeking advice to resolve any tax arrears is paramount for business owners. This is not a problem that will go away.
How can I resolve my arrears with HMRC?
First and foremost, contact HMRC directly and do it as soon as possible.
HMRC will assess your business situation to see if a payment can be made and to consider the solvency of the business. If it is financially viable, but cannot pay due to cash flow problems, HMRC can offer you a Time To Pay (TTP) arrangement. This will give business owners the breathing space needed to catch up on arrears, usually via a payment plan for a period not exceeding 12 months.
There are circumstances, however, where business owners will need outside assistance from experienced professionals to reach an acceptable agreement with HMRC, particularly if the arrears are complex, many-faceted and there are significant debts owed to other creditors.
How we can help
Through our specialist Tax Dispute Resolution team, we can help you find the best resolution with HMRC and get your business on the road to financial recovery. It is important that we understand your business’s situation in detail, so our initial consultation is free of charge and without obligation. We have extensive experience assisting business owners and directors, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 0203 995 6380 and we will arrange for a call with one of our Partners.