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    Insolvency Practitioners

    Insolvency Practitioners and HMRC Debt

    The Tax Man Cometh….Eventually! We Can Help. 

    As Insolvency Practitioners and Business Turnaround experts, it might not come as a huge surprise that we have helped many clients with one particular problem… HMRC Debt. We have long experience of working with HMRC. We know what they are looking for and we have helped many clients negotiate with HMRC to agree solutions that work for both parties.

    Recently we have come across several businesses who haven’t been submitting or paying VAT returns for periods of up to 4 years! When times are tough, HMRC are often one of the creditors who don’t get paid. And when they catch up with the late-paying or non-paying business, then the real problems start. This latest in our series of cautionary tales looks at what powers HMRC has when it is owed tax monies and gives some advice on how to communicate with them.

    HMRC Debt is Serious – and These Clients had Significant VAT Related HMRC Debt

    Each company ran their own small business and tended not to have much in the way of trade and expense creditors.  However, in each case, the debts due to one creditor – HMRC – were significant and represented a backlog of VAT payments. 

    Some of the companies had not completed the VAT returns but had been paying the assessments that were sent by HMRC. Others had simply ignored the requirement and hadn’t even submitted the returns or paid anything! A very risky strategy given that paying HMRC is a statutory requirement.

    What Happens When HMRC Catches Up With the Non-Paying Business?

    In each case HMRC had finally caught up with the company and had commenced recovery action.  In situations like this, in our role as business advisors as well as insolvency practitioners, we explain that HMRC have 3 major concerns where traders are not complying with their statutory duties:

    1. Firstly, HMRC is an Involuntary Creditor. HMRC have no choice other than to trade with a business – if a client needs to charge VAT, then HMRC become an “involuntary creditor”. HMRC don’t know what you owe to them unless you fill the forms in and tell them!  They can of course issue assessments but in most cases we see, they tend to be much lower than the true VAT payment due. So even if the assessment is paid, it usually means the HMRC Debt is still growing. Also, payment of an assessment doesn’t replace the obligation to submit accurate returns on time.
    2. Secondly, HMRC’s Statutory Duty is to Collect the Debt That is Due. They have wide ranging debt enforcement powers culminating in the ultimate sanction of petitioning the Court for either Bankruptcy or Winding Up.
    3. Thirdly, making sure a trader doesn’t simply go and do the same thing again! Many traders start up a new business after a previous one enters formal insolvency and HMRC have systems and sanctions in place to monitor future compliance.  In some cases, this can include asking for a “bond or deposit” to be held against any future compliance failures.

    What About Negotiating Settlement Terms Such as Time to Pay Arrangements?

    Quite understandably, the appetite for HMRC to agree to settlement terms is lukewarm where there have been serious and on-going compliance breaches.  Most of these companies are now facing the inevitable insolvency of their business, the impact of which should not be underestimated.

    Where a limited company is involved, a Liquidator or Administrator has to report on the conduct of directors and one of the areas of focus is the proportion of HMRC claims as compared to other creditors.  In the most recent cases, HMRC made up 80-90% of the creditors and Directors are at risk of disqualification proceedings being brought by the Secretary of State for Business.

    Our Insolvency Practitioners can help

    The causes of unpaid and mounting HMRC debt are many and varied, but it is almost always a sign of a business that is facing difficulties. As insolvency practitioners we deal with HMRC a lot and we know that they like to be communicated with and kept informed of problems – and the earlier the better. Under these circumstances the chances of negotiating a settlement are much better – giving the under pressure business a breathing space to turn itself around.

    The moral of this cautionary tale is that HMRC will almost always catch up with businesses that owe them money, and the penalties can be harsh. If you have a client in this situation, better to talk with them – and us – early and work out a turnaround plan. Contact us or call our insolvency practitioners and insolvency experts at our Birmingham headquarters on 0121 200 2962 for an initial chat.

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