READ TIME: 13 Minutes
Dealing with HMRC company debt is important.
Having outstanding Her Majesty’s Revenue and Customs (HMRC) debts, whether, Income Tax (PAYE), NI or VAT arrears, requires to action to rectify the debt as soon as possible. HMRC debt is classified as priority debts. The outcome of failing to pay can be very severe and commence a court action to force payment, eventually prompting bailiffs.
Dealing with HMRC Company Debt remains very important.
When first setting up a limited company. Directors should, as part of their business plan, then set aside a very significant creditor, HMRC.
Company Directors must ensure they meet the demands and needs of operating as a company complying with HMRC needs.
Regularly check for changes in Tax matters, especially employee tax. DO NOT FORGET to register for VAT, if you know your business will exceed the current threshold of £85,000 per annum.
ENSURE at all times, the companies books of account are maintained, monthly management accounts are prepared and if in doubt? Ask for an explanation and clarity. Not knowing is not a defence as a Director. The Responsibility, therefore, sits robustly with directors, especially for HMRC issues.
Suppose the HM Revenue and Customs (HMRC) have sent you a demand for the tax that you are unable to pay. It’s then essential to make contact with them as soon as possible, to arrange a settlement plan. Failing to do so, therefore, triggers the HMRC to instruct proceedings.
The Limitation Act 1980 s 37, stipulates no time limit before HMRC is required to chase a debt for tax once an assessment or demand is issued. Further, s 9 and s 24 of the Act does apply a six-year limit for NICs. DMB chase old debts, issuing chasing letters to unpaid taxpayers.
- Control company debt.
- Avoid Court proceedings with HMRC.
- Pay VAT due – Pay your VAT on time – avoiding interest and penalties.
- Avoid late VAT payments.
- Evade HMRC recovery process or any form of recover action.
- Deal with HMRC on time – Do not avoid them.
- Ensure you account for and pay corporation tax as due.
- Do not let a tax or VAT liability build up – If in trouble, seek help from an insolvency practitioner.
- Do not hide unpaid VAT.
In the 2018 budget, the proposed status of HMRC would change, effective April 2020.
The current Pandemic though has, therefore, somewhat changed things. We await the outcome?
HMRC debt is perhaps the one creditor, most directors have nightmares about. They fear collectors knocking on the door, demanding payment. Once the HM Revenue appears at your door, other creditor pressure then seems insignificant.
HMRC is perhaps the one creditor; directors, therefore, ignore when cash is tight, yet they are the most diligent collectors.
The Revenue have changes afoot though for serial late payers and defaulters. The net is closing. Remember, the Pandemic is putting the country into massive debt.
We can help you either resolve your issues with the HMRC or restructure your company with a clear head.
At HBG, we are here to help.
Every day, companies are falling into debt with HMRC. Many cannot pay the HMRC on time. Indeed they fear to deal with the HMRC. We forget they act on behalf of the public.
It is in the interest of the HMRC to listen and try to assist. They though want the facts. Read below for further assistance:
Each department has slightly different criteria.
What is important is then making contact quickly.
We are not aware of time scales but:-
Being unable to make a payment as a direct cause of the coronavirus, then you may hold payment for your self-assessment, due July 2020 until January 31st,2021.
Ensure you contact the HMRC Coronavirus (COVID-19) helpline, if you are unable to pay other tax bills.
Then, ensure you make notes, including date, time, whom you spoke with and the details of your discussion.
And your business is then, affected by the coronavirus (COVID-19), then claim the Self-Employment Income Support Scheme.
If you fail to satisfy the criteria, then, providing you owe less than £10,000, you may qualify for a Time to Pay Arrangement online?
Contact Self Assessment helpline if you’ve missed your payment.
Self Assessment Payment Helpline
Telephone: 0300 200 3822
Monday to Friday, from 8 am to 4 pm.
Sometimes HMRC may offer you a time to Pay Arrangement if unable to pay other taxes.
If you’ve received a demand for payment, then call the office as detailed in your letter. Failing which,
The Payment Support Service (BPSS) is the HMRC helpline to help negotiate instalment terms for tax debt owed that is nearing payment, but the taxpayer is not able to pay in full by the due date.
The helpline number for Business Payment Support Service (BPSS) is:
Payment Support Service
Telephone: 0300 200 3835
Monday to Friday, from 8 am to 4 pm.
Nominated partners in business partnerships may negotiate a Time to Pay Arrangement with HMRC on behalf of the partnership or individual partners.
Ensure you make immediate contact; therefore, with the HM Revenue and Customs when you miss your payment. How you contact HMRC depends on what you need to pay. Read management support below, which should help to find the right point of contact.
However, you may incur interest due to late payment. So avoid penalties by contacting HMRC as soon as possible, noting time and date along with whom you spoke.
Let the HMRC know you are serious in wanting to resolve your situation honestly.
- Unable to pay forthcoming Tax Bill.
- HMRC may offer part payments for due tax.
- Time to Pay (TTP) plan.
- Instalment plan.
- Business Payment Support Service (BPSS) is the point of contact before the tax due date.
- Self Assessment Payment Helpline is for when you have missed the deadline, and you are under self-assessment.
- Large Business Unit Time to Pay (TTP) plans in place for those taxpayers who are under Large Business Service (LBS) and use the Large Business Unit (LBU).
- Large Debt Unit is for indirect tax debts of £150,000 or more.
- A TTP plan needs to be supported by realistic, achievable figures. Remember, it is not there to drag payment out with no attainable end.
- Seek professional help as the HMRC see through weak plans.
Support handling HMRC Debt in the UK.
- Citizens Advice – Help for personal and business tax problems. – 03444 111 444.
- Business Debt line – Support for self-employed people across the UK with debt and money management issues. – 0800 197 6026.
- TaxAid – 0345 120 3779.
- Advise UK – 0300 777 0107.
Example of HMRC Letter
When a director of a limited company discovers that they are having issues with their payments, then this may be an indicator that the company is, therefore, insolvent; therefore, requires attention.
So ensure you speak to one of our Insolvency Practitioners, who can help with your crown debt problems on 0800 612 5448.
Self Assessment Payment Helpline is provided by the tax office’s, to help businesses in financial arrears. Its offers opportunity to negotiate instalment terms for tax arrears, that an individual may have, while under self-assessment tax.
HMRC DEBT Self Assessment Payment is 0300 200 3822.
Depending on the financial situation if a limited company. Options are available.
Suppose you wish to close the company for good. You may use the following insolvent procedures:
If you to maintain the company:
UK has deferred VAT payments for three months ending of June 2020. It possibly may extend while the Coronavirus Pandemic is in place. Intending to help benefit 2 million VAT payers, and delay £30 billion in taxes, since it includes pre-crisis trading. VAT is due at the end of the 2020/21 financial year.
Any deferred UK VAT remains due 2021 – dates vary.
VAT not paid during the period is to be paid by the end of the 2020/21 financial year, which ends on March 31st 2021. The same date as for all UK monthly VAT payers. But the time for quarterly VAT payers, the majority will be determined by their VAT filing deadlines, so: March 31st 2021; April 30th 2021; or May 31st 2021.
- There has been no mention of interest charges on deferred VAT.
- No allowances are in place for businesses with special schemes, Eg: annual VAT payment.
If you do not attempt to negotiate, then HMRC may consider ‘enforcement action’ to recover the money from you.
When the HMRC evaluate, you are unable to get your payments up to date with more time. They may decline an arrangement with you and demand immediate payment of your tax debt. Failure to pay immediately ensures the HMRC commences ‘enforcement action’ to recover outstanding tax debt.
The HMRC uses numerous ways to collect tax no matter how small:
- Issues fines and penalties.
- Uses statutory demands to encourage payment.
- Failing payment, so issuing a Winding-up Petition to the company for not paying tax.
- Finally, seizing goods to cover the cost and tax not paid.
The HMRC remains responsible for collection on behalf of the crown for duties and taxes in the UK.
PAYE & VAT is aggressively collected as they are the more significant part of the tax due.
VAT though, chased the hardest, as you collect VAT on behalf of the HMRC.
When a registered bailiff attends your premises, they can take control of goods or property at the companies registered address.
Then, they either keep the goods awaiting payment for return within a short period or send them to a public auction, to settle the outstanding debt, including associated costs. The procedure is known as a “distraint“.
The officer from the HMRC, or the certified bailiff on behalf of the HMRC, has a “Writ of Control“.
If either of the above is not agreed then, the bailiff may attend after the period and exercise Control of Goods (Seizure). Failure to comply with a signed agreement by the debtor means the bailiff may remove goods there and then, and sell them at auction.
If goods removed and sold, do not cover the amount due. Then the HMRC may issue a winding-up petition.
- Effective April 2016 onwards, HMRC can recover tax liabilities of £1,000 or more from business bank accounts. They may only carry this out, once they have held a meeting with the client beforehand and tried to collect, but failed to do so:
- To identify the taxpayer and affirm their debt.
- Explain the amount due and why the HMRC are chasing?
- Discuss options for repayment.
- Check if the taxpayer is ‘vulnerable’ debtors and if so, provide support to aid settlement.
- Then, those not vulnerable but have money to pay the tax debt who refuse to pay can then have money taken from their account. Thirty days is allowed to object to HMRC’s decision and it a condition that the taxpayer has £5,000 left in the account.
Failure to pay National Insurance contributions (NICs) can be recovered by the use of a personal liability notice issued by HMRC. An officer of the HMRC though has to believe, payment withheld, was fraudulent or negligent, by an officer of the company or any person party to and in a position of authority compliant in non-payment.
Therefore recovery of unpaid NICs from a company officer is dealt with by the issuing of a Personal Liability Notice (PLN).
Personal Liability Notices Teams are authorised to issue such notices. PLNs are only issued when they are enforceable.
Tax Tribunals hear appeals against PLNs.
PLN’s are issued when companies have been blatantly negligent, not paying over National Insurance Contributions deducted from employees pay.
Owing tax to the HMRC is severe enough under regular terms. However, suppose you as a director withhold any form of tax, especially VAT, with intent to defraud the crown. Then you are exposed to fines, imprisonment as it is a criminal offence. Delaying paying your tax bill, being late paying your VAT, failing to be vat registered is dealt with by fines and other financial ways. Fraud, though, is taken seriously, especially with VAT.
Validation orders authorise the distribution of property following a winding-up or bankruptcy petition.
UK banks view date advertised as being the date of the petition. That being the case, the advertisement allows banks to be aware of any winding up petition. Therefore they then immediately ‘freeze’ the company’s bank accounts, as they are concerned, the liquidator may claim losses incurred.
The short term effect of this on the debtor means, however, they lose the ability to trade.
A validation order lets a company continue trading. It also makes possible the sale of an asset or assets for the benefit of all the companies creditors. Effects of an order may vary, specific or to the benefit of say employees. A validation order can be open validating transactions up to the winding-up petition is resolved if at all.
You require the services of experienced lawyers to draft the order and then submit on your behalf.
The information required needs to be robust and factual, with very substantive legal argument. Applications requirements need to be supported by substantial evidence and persuasive admissible evidence.
- your following an application to the Court and
- following a hearing of that application.
A validation order application is not administered by the Registrar at the time of the hearing, as stated on the winding-up petition you have received. You are required to seek a further hearing before the Judge in a Court.
The Judge, however, requires satisfaction that the evidence is credible and the company is not insolvent. The company must also demonstrate the ability to satisfy its debts as and when they are due. Further, you order must if unsecured not be in prejudice to other creditors if so.
- Company number, it’s trading and registered office address;
- A brief outline of your companies journey;
- The company’s nominal and paid-up capital;
- Do you admit or dispute the petition:
- A summary outlining how the company received notification of the winding-up petition;
- Up to date financial position, ensuring detailed notes and previous management accounts.
- If disputed, why? Details;
- A credible, realistic professional cash flow forecast and profit and loss projection covering the period the order sought;
- Details of the dispositions or payments in respect of which an order sought;
- Reasons used in support of the dispositions or payments made;
- Any other information in support for consideration of the Court;
If an urgent application? To ensure payments allow the company to keep trading, then if compiling evidence may be lengthy, a Court can offer limited relief for a short set time. There needs to be evidence to satisfy the Court that creditors interests are not prejudiced.
The order requires a sale of a property, the Court requires property details along with a valuation if possible, to confirm the real value and not at undervalue affecting other creditors.
During these difficult trading times, companies are finding it very difficult to control cash flow. Therefore, paying has become a problem. VAT, however, remains the tax the HMRC are very stringent on collecting. HMRC charge surcharges for late payment (Outside the Coronavirus Pandemic).
The number of defaults determines surcharges.
If you have been late paying the HMRC more than twice in a year, then a surcharge over will apply.
The outstanding sum your company owes. Then include surcharges calculated as a percentage.
For the latest information on surcharges during the COVID19 Pandemic view the HMRC VAT site for up to date information.
When in the shoes of petitioning creditor, consider factors relating to the purpose of the order and the history of previous payment trail.
HMRC’s response may depend on the reason for the order and the trading trend before.
They can oppose an application.
Consult a commercial solicitor?
Validation orders are technically a minefield and require expert knowledge.
For help on Directors Redundancy view REDUNDANCY.
Contact HBG Advisory on 0800 612 5547 Seven days a week. 8 am to 8 pm or click VIRTUAL and arrange a safe, confidential virtual meeting online.
The Team at HBG Advisory