How to deal with HMRC pressure for unpaid tax liabilities

Updated: 11th February 2021

If you are facing pressure from HMRC regarding your company’s tax liabilities, it is reassuring to know that options are available to steer you through this stressful time. You may have become delinquent on payments due to a downturn in the market, the loss of a key customer, or an inability to collect your own debts on time.

HMRC hold considerable powers when it comes to recovering their debts and from your point of view, it is no help that their systems are able to quickly spot late payers. We see many cases where the company has set aside money for their tax bill, but needs to draw on it to meet a more pressing debt.

If the tax money is not replenished because of other cash flow issues – perhaps a drop in sales in the meantime – this is when problems can spiral out of control. However, there are several positive steps you can take to manage the situation whether HMRC is chasing for Corporation Tax, PAYE or VAT arrears.

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How to deal with pressure from HMRC

The main advice is to act quickly. If you fail to contact them about your situation the chances of a successful outcome are significantly reduced, but negotiations can be difficult if you do not understand how they operate.

Begbies Traynor can contact HMRC on your behalf. We have local offices and an excellent history of successful negotiations.

Time to Pay (TTP) arrangement

The introduction of HMRC’s Time to Pay arrangement indicates an understanding of the problems facing limited companies in this challenging economy, and a willingness to assist businesses facing genuine cash flow problems. A TTP arrangement can be implemented to cover a variety of tax arrears including VAT.

This formal agreement with HMRC allows you extra time to pay your tax bill, with certain caveats:

  • You must be completely honest with HMRC about your company’s financial position. If they suspect that you are insolvent, or they agree to an instalment plan only to discover later that you misled them during negotiations, any arrangement will be cancelled and the business could be liquidated.
  • They prefer to be contacted prior to a tax payment falling due, rather than deal with arrears. Although arrears can be included within a Time to Pay arrangement, contacting them as soon as you foresee a problem demonstrates a degree of financial control and transparency of operations.
  • Time to Pay arrangements are only offered to companies temporarily unable to pay their tax liabilities. If an instalment plan is agreed, and you spend money on something other than your tax bill, you will be penalised if this comes to light.

An extended payment period of up to a year is common with a Time to Pay arrangement, and although the overall debt is not reduced, this added time relieves some of the pressures on a company that is already struggling.

It should be noted that a failed Time to Pay arrangement can be disastrous for a debtor, often leading to HMRC attempting to close the limited company in order to recoup its debt. This is why you need to ensure that no payments are missed or late for the entire term of the arrangement.

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Options for managing cash flow

Invoice factoring and discounting

Invoice factoring and invoice discounting provide access to the value of invoices yet to be paid. If your credit control processes are efficient and debtors have a good history of paying on time, both methods can quickly release working capital.

Invoice factoring enables your line of credit to increase in direct correlation to sales, with new invoices offering access to more cash.

Generally speaking, 80%–90% of the value of unpaid invoices can be accessed. Invoice factoring or invoice discounting may help to provide the injection of cash needed to pay HMRC, and relieve financial pressure in the long term.

Asset financing

Companies owning assets of considerable value may be able to obtain a short-term loan secured on one or more of them. Assets could include company vehicles, equipment, property or inventory.

It is a good way to release cash in an emergency, satisfying HMRC’s tax requirements and giving you breathing space to bring your company’s finances under control again.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) may be a suitable option for viable companies who have several unsecured creditors pressuring you alongside HMRC. It is a formal agreement to pay debts over a longer period of time, and can include tax arrears.

Several payments are condensed into a single monthly repayment, which has the effect of freeing up cash immediately. It can be the catalyst for positive change in companies struggling under the pressure of debt.

You would need to appoint an Insolvency Practitioner to analyse your company finances and present the case for a CVA. Begbies Traynor has a long history of successful negotiations, and offers a free, same day meeting for companies in distress.

Company administration

If none of the above options are possible, the best course of action may be to enter Company Administration with a view to turning the business around. If HMRC are about to issue a petition to wind up your business, or you simply see no way out of your current situation and are worried about personal liability, this route into formal insolvency could potentially avert the threat of legal action from HMRC.

Begbies Traynor can help you negotiate to bring about positive change in your business. Contact any of our 70+ local UK offices to take advantage of our free initial consultation.

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