Dealing With HMRC Company Debt

Dealing with HMRC company debt. Written by John A Waller. Consultant June 29th, 2024.

It is essential to deal with HMRC Company Debt. 

HMRC debt, whether income tax, National Insurance or VAT arrears, must be sorted out immediately. HMRC debts are priority debts. If you do not pay, there can be severe consequences, including a court order and using debt collection agencies and bailiffs.

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What is HMRC company debt, and why is it a serious matter?

Every UK company must pay HM Revenue & Customs (HMRC) taxes.

These include-

Should a company fall behind on these payments, it will accumulate a debt to HMRC.

How long can HMRC chase a debt?

If HMRC launches an investigation into you or your business finances, they can pursue a debt of up to 20 years. However, the standard timeframe for an inquiry is four.

Therefore, dealing with HMRC’s debt remains crucial.

When starting a limited company, directors should include HMRC as a significant creditor in their business plan.

Directors must ensure they meet HMRC requirements, as they are tenacious about recovering debts owed to them.

Regularly check for changes in tax matters, particularly employee tax. SO DO NOT FORGET to register for VAT if you know your business will exceed the current threshold of £85,000 per year.

Many company directors, however, ask: ‘I can’t pay VAT. What happens next?

Make sure the company’s books are in order, and monthly management accounts are prepared, and if not, ask for an explanation of why not—not knowing that as a director is not a defence. Therefore, responsibility lies firmly with the directors, especially in HMRC matters.

Receiving a VAT Notice of Assessment tax 

If you cannot pay your VAT bill, you will receive a “notice of assessment” detailing an assessment of VAT, as no VAT return is received. HMRC allows 30 days to pay in the evaluation or make a return.

However, being unable to pay does not mean you do not submit a return.

If you cannot pay HMRC the tax you owe, you must be efficient and practical about your options. VAT money is government money collected by the party registered for VAT. Therefore, when unpaid, the VAT office takes a dim view, pursuing those in arrears with great tenacity.

Your priority should be communicating with HM and Revenue; as options remain available, act quickly. How you approach HMRC is important. Directors need to act honestly at all times. So, ensure you have: –

  • Companies VAT number;
  • The reason your company is unable to make payment;
  • An accurate, realistic, achievable cash flow forecast;
  • The turnover and expenditure of your business;
  • List of company assets with realisable equity; business;
  • What is your plan to ensure the company can pay the VAT liability?

HMRC Debt Management

Contacting HMRC Debt Management and Banking Team

The following are the contact details for HMRC’s dedicated debt management and banking team.
ACCA assisting in liabilities of directors
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Sorting my Tax Liability
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HMRC Debt – Tax owed to HM Revenue and Customs.

Let’s assume the HM Revenue and Customs (HMRC) have sent you a demand for the tax you cannot pay. It is then crucial to contact them to make a settlement plan as quickly as possible. Failure to do so, therefore, triggers the HMRC to instruct proceedings.

How long can HMRC chase a debt?

The Limitation Act 1980, s 37, stipulates no time limit before HMRC is obliged to pursue tax debt once an assessment or request is made. Further, s 9 and s 24 of the Act apply a six-year limit for NICs. DMB chased old debts, issuing letters to unpaid taxpayers.

Therefore Ensure You:

  • 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 recovery 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.

Direct recovery of HMRC debts

HMRC can take the money you owe directly from your bank or building society account without your permission through a process called “direct recovery of debts.

Tax Credit Overpayment

HMRC Tax Credit Office will write to advise you that you have been overplayed tax credits and how to repay the debt. If you think this is in error, please call tax credits enquiries helpline on-

Tax Credit Enquiries: 0345 300 3900

Monday to Friday, from 8 am to 6 pm.

If you are still receiving tax credits or have recently started receiving Universal Credit, the outstanding amount you owe will usually be deducted from your future payments.

However, if you are no longer eligible for tax credits and do not receive Universal Credit, you must make payments directly to HM Revenue and Customs (HMRC). Failing to repay HMRC on time, they may take your money differently.

Dealing With HMRC Company Debt – 2018 Budget

HMRC’s status changed on December 1st, 2020. They became a preferential creditor when ranking for payment.

However, the current pandemic has changed the circumstances. Do we await the outcome?

HMRC is the one creditor that gives most company directors nightmares. They fear collectors demanding payment. Other creditor pressure appears insignificant once the HM Revenue appears at your door.

HMRC is perhaps the one creditor company directors ignore when cash is tight, but they are the most diligent collectors.

Revenue has plans for serial late payers and defaulters, so the net is closing. However, remember that the pandemic is putting the country in massive debt.

Therefore, we can help you solve your problems with HMRC or restructure your business with a clear head.

At HBG, we are here to help with HMRC tax debt problems.

Every day, companies fall into debt with HMRC. Many will not be able to pay HMRC on time. Indeed, they fear dealing with HMRC. However, we forget that they act for the public.

HMRC is interested in listening and trying to help. However, they want the facts.

Dealing with HMRC Debt Collectors

Contact them immediately to work out a payment plan if you get a tax bill from HMRC that you can’t pay.

Do so successfully, and you can nip this problem in the bud. However, if HMRC refuses to offer you a ‘Time to Pay Arrangement’, HMRC will commence proceedings to recover the outstanding tax if you fail to pay it. The risk of such action by HMRC could mean the closure of your business.

HMRC will probably charge you interest and penalties if you don’t pay your bill. If you still can’t pay the debt you owe and HMRC won’t agree to a payment plan, you could get a letter from HMRC’s debt collectors.

HMRC – Debt: How long will HMRC give me 

The most important thing is to make contact quickly.

Each department has different criteria.

However, we are not aware of time scales, but-

Are you dealing with HMRC company debt if you are Self-Employed?

You could claim the Self-Employment Income Support Scheme if the coronavirus affected your business. However, the scheme closed on September 30th, 2021.

You may qualify for a time-to-pay Arrangement online if you do not meet the criteria and owe less than £10,000.

Contact the Self Assessment helpline if you missed your payment.

Self Assessment Payment Helpline
Telephone: 0300 200 3822
Monday to Friday, from 8 am to 4 pm.

Are you dealing with HMRC Company Debt – Unable to pay Other Taxes To HMRC?

Sometimes, they can offer you a time to pay if you cannot pay other taxes.

If you have received a payment request, contact the office as described in your letter. Failing which,
Call the:

Payment Support Service (PSS)

The Payment Support Service (BPSS) is the HMRC helpline for negotiating instalment terms for tax debt nearing payment that the taxpayer cannot fully pay by the due date.

The helpline number for Business Payment Support Service (BPSS) is:

Self Assessment payment

Call if you missed your self-assessment payment deadline.

Telephone:
0300 200 3820

Opening times:

Monday to Friday: 8 am to 6 pm

Closed weekends and bank holidays.

You can also find out information in either your:

VAT payment

Call if you have missed your VAT payment deadline.

Telephone:
0300 200 3831

Opening times:

Monday to Friday: 8 am to 6 pm

Closed weekends and bank holidays.

You can also find out information in either your:

PAYE payment

Call if you have missed your PAYE payment deadline.

Telephone:
0300 200 3810

Opening times:

Monday to Friday: 8 am to 6 pm

Closed weekends and bank holidays.

You can also find out information in either your:

Corporation Tax payment

Call if you have missed your Corporation Tax payment deadline.

Telephone:
0300 200 3845

Opening times:

Monday to Friday: 8 am to 6 pm

Closed weekends and bank holidays.

You can also find out information in either your:

Nominated partners in business partnerships may negotiate a Time to Pay Arrangement with HMRC on behalf of the partnership or individual partners.

Dealing with HMRC company debt – What should you do?

Ensure you secure immediate contact with HM Revenue and Customs when you miss payment. How you contact HMRC depends on what you need to pay. Read management support below, which should help you find the exact point of contact.

However, late payment may incur interest. To avoid penalties, contact HMRC as soon as possible, noting the time and date with whom you spoke.

Let the HMRC know you honestly want to resolve your situation.

Dealing with HMRC company Debt – Management support

  • Unable to pay the 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 miss the deadline, and you are under self-assessment;
  • Large Business Unit Time to Pay (TTP) plans are 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 sees through weak plans.

Dealing with HMRC company Debt – Is support available with HMRC Debt?

Support handling HMRC Debt in the UK.

  • Citizens Advice – Help for personal and business tax problems. – 03444 111 444;
  • Business Debt line – Support self-employed people across the UK with debt and money management issues. – 0800 197 6026;
  • TaxAid0345 120 3779;
  • Advise UK – 0300 777 0107.

I can’t pay HMRC?

HMRC VAT Debt Management Letter

Example of HMRC Letter

When a limited company director discovers issues with their payments, this may indicate that the company is insolvent and requires attention.

So, please call 0330 056 3120 to speak to one of our insolvency practitioners, who can help with your crown debt problems.

Tax offices provide a Self Assessment Payment Helpline to help businesses with financial arrears. It offers the opportunity to negotiate instalment terms for an individual’s tax arrears while under the self-assessment tax.

 HMRC DEBT Self Assessment Payment is 0300 200 3822.

Closing a limited company with debts to HMRC

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 want to maintain the company:

During Coronavirus Crisis, paying HMRC Debt – VAT

HMRC deferred VAT payments for three months, ending in June 2020.

VAT not paid during the period is paid by the 2020/21 financial year, which ended on March 31st, 2021—the same date as all UK monthly VAT payers. However, the time for quarterly VAT payers and their VAT filing deadlines determined the majority: March 31st, 2021, April 30th, or May 31st, 2021.

Contact HMRC and join the VAT deferral new payment scheme.

The new VAT deferral payment scheme opened on February 23rd 2021 and ran until June 21st 2021. All instalments had to be paid by January 2022.

The scheme allows you the following:

  • To pay your deferred VAT in equal instalments, interest-free
  • Choose the number of instalments from 2 to 11 (depending on when you opted to join the scheme).

How to join

Before joining, you need-

  • Your VAT registration number;
  • Created your own Government Gateway account;
  • Submitted any outstanding VAT returns from the last four years – otherwise, you’ll not join the scheme;
  • correct errors on your VAT return as soon as possible;
  • Ensure you know how much you owe, including the amount you initially deferred and how much you may have already paid.

To join the scheme. HMRC required you-

  • Join the scheme yourself; your agent cannot do this for you;
  • Have deferred VAT to pay;
  • Be up to date with your VAT returns;
  • You had to join by June 21st 2021;
  • Pay the first instalment when you join;
  • Pay your instalments by Direct Debit.

However, once you joined the scheme, you still had Time to Pay arrangements for other HMRC debts and outstanding taxes.

Dealing with HMRC company debt Negotiating with HMRC

If you did not attempt to negotiate, HMRC might consider ‘enforcement action’ to recover the money from you.

If HMRC Offers No More Time? 

You cannot update your payments with more time when the HMRC evaluates. They may decline your arrangement and demand immediate payment of your tax debt. Failure to pay immediately ensures the HMRC commences ‘enforcement action’ to recover outstanding tax debt.

How does HMRC collect tax?

The HMRC uses many ways to collect tax, no matter how insignificant:

  • 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 collecting duties and taxes in the UK for the crown.

PAYE & VAT are aggressively collected, as they are the more significant part of the tax due.

VAT, though, is the hardest as you collect VAT on behalf of the HMRC.

If your company receives a winding-up order from HMRC, you must know what to do next as a director.

Dealing With HMRC Company Debt – Control of Goods.

Dealing with HMRC debt and your rights?

You must clearly understand what HMRC debt collectors are legally authorised to carry out when collecting unpaid tax. For example, having a visit from an HMRC enforcement officer or bailiff means both are lawfully entitled to force entry into commercial premises only, provided a court has authorised such action. 

Please read ‘Notice of Distraint issued by HMRC’ for a more detailed explanation of HMRC’s notices of distraint.

HMRC debt collectors can seize items to repay the outstanding debt, including costs, as soon as they enter your commercial premises. Notably, items removed have a lower value and are usually sold at a public auction.

Before uplifting items, the enforcement officers will attend your commercial premises to list items to seize as security as part of the Controlled Goods Agreement. Signing the agreement allows you seven days to raise funds to repay the debt plus costs. Refusing to do so prompts the bailiff to remove the goods immediately. Once you sign a Controlled Goods Agreement, the goods remain under the agent’s control. Therefore, you may not sell or remove them. Doing so is a criminal offence.

Can Enforcement Officers remove items that belong to you personally?

No. 

An incorporated limited company in England and Wales is legally separate. Therefore, the company’s finances are distinct, meaning assets owned by the directors, like cars, investments in their names, and homes. Remain protected. If the assets are in the limited company’s name, they remain their assets and will be sold by a liquidator if the company fails.

If goods are removed and sold, do not cover the amount due. The HMRC may then issue a winding-up petition against the limited company.

Can HMRC take money from the Company Accounts?

  • Effective April 2016, HMRC can recover £1,000 or more tax liabilities from business bank accounts. They may only carry this out once they have held a meeting with the client beforehand and attempted 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 it;
  • Discuss options for repayment;
  • Check if the taxpayer is a ‘vulnerable’ debtor, and if so, provide support to aid settlement;
  • Then, those who are not vulnerable but have money to pay the tax debt and refuse to pay can have money taken from their accounts. Thirty days is allowed to object to HMRC’s decision, and the condition is that the taxpayer has £5,000 left in the account.

Personal Liability Notices Issued by HMRC.

Failure to pay National Insurance contributions (NICs) can be recovered using a personal liability notice issued by HMRC. However, an HMRC officer must believe that payment withheld is fraudulent or negligent by an officer of the company or any person party to and in a position of authority compliant with non-payment.

Therefore, a personal liability notice (PLN) is issued to recover unpaid NICs from a company officer.

Which HMRC Department Issues PLNs?

Personal Liability Notices Teams are authorised to issue such notices. PLNs apply when they are enforceable.

Tax Tribunals hear appeals against PLNs.

PLNs. When are they issued?

PLNs are issued when companies have been negligent and have not paid over National Insurance contributions deducted from employees’ pay.

Distraint In Northern Ireland

HM Revenue and Customs can take possessions you own and sell them to pay your debt. In Northern Ireland, this is called ‘distraint’.

Wrongful Trading

Tax to HMRC is severe enough under standard terms. However, suppose you, as a director, withhold any form of taxation, especially VAT, intending to defraud the crown. Then, you are exposed to fines and imprisonment, as it is a criminal offence. Delaying paying your tax bill, being late paying your VAT, or failing to be VAT registered is dealt with by fines and other financial ways. Fraud, though, is taken seriously, especially with VAT.

Dealing With HMRC Company Debt – What is a Validation Order?

Validation orders authorise the distribution of property following a winding-up or bankruptcy petition.

UK banks view the date advertised as the date of the petition. Therefore, the advertisement allows banks to be aware of any winding-up petition. Consequently, they immediately ‘freeze’ the company’s bank accounts; as they are concerned, the liquidator may claim losses.

However, the short-term effect on the debtors is that they lose the ability to trade.

What effect does a validation order then have?

A validation order lets a company continue trading and allows the sale of an asset to benefit all the company’s creditors. The effects of an order may vary, and they may be specific to using, say, employees. A validation order can be open, validating transactions until the winding-up petition is resolved, if at all.

Requirements for a validation order application?

You require experienced lawyers to draft and submit the order on your behalf.

The required information must be robust and factual, with substantive legal arguments. Substantial evidence must support the application requirements and persuasive admissible evidence.

You may only create a validation order if:

  • You are following an application to the Court and
  • Following a hearing of that application.

The Registrar does not administer a validation order application 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 Court.

The Judge, however, requires satisfaction that the evidence is credible and the company is not insolvent. Once court action has started, the company must also demonstrate the ability to satisfy its debts as and when they are due. Furthermore, your order must, if unsecured, not be in prejudice to other creditors.

General information required for an application:

  • Company number, its trading and registered office address;
  • A brief outline of your company’s 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;
  • I have an 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 was sought;
  • Reasons used in support of the dispositions or payments made;
  • Any other information in support of the Court;

Is it an urgent application? A court can offer limited relief for a limited time to ensure payments allow the company to continue trading. Evidence must be presented to satisfy the Court that creditors’ interests are not prejudiced.

The order requires a sale of a property. If possible, the Court requires property details and a valuation to confirm the actual value and not at undervalue affecting other creditors.

VAT Surcharges?

How are they calculated?

Companies cannot control cash flow during these difficult trading times, so paying has become a problem. VAT, however, remains the tax HMRC demands to collect. HMRC charges surcharges for late payments (outside the Coronavirus Pandemic).
The numbers of defaults determine surcharges.

A surcharge will apply if you have been late paying the HMRC more than twice a year.

The outstanding sum your company owes. Then, include surcharges calculated as a percentage.

For the latest information on surcharges during the COVID-19 pandemic, view the HMRC VAT site for up-to-date information.

Dealing With HMRC Company Debt – HMRC Response to a Validation Order?

When in the shoes of a < substantial> petitioning creditor, consider factors relating to the purpose of the order and the history of the previous payment trail.

HMRC’s response may depend on the reason for the order and the previous trading trend.

They can oppose an application.

Consult a commercial solicitor?

Validation orders are technically a minefield and require expert knowledge.

REMEMBER – HMRC DEBT does not solve itself

Further, help and assistance

how long can hmrc chase a debt

HBG Advisory can support you with HMRC Inland Revenue Debt.

HM Revenue and Customs has considerable means of recovering unpaid tax. Therefore, it’s essential to ensure that they are a priority. 

It is worth mentioning that HBG Advisory deals solely with corporate debt, not income tax arrears. We can, though, provide support individually through Individual Voluntary Arrangements (IVA).

The Team at HBG Advisory

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