Time to pay pressure from HMRC

The latest insolvency statistics show a substantial increase in the number of companies being wound up by court order – up by over 30% on 2024. This process is most often used by HMRC, and the increase is evidence of a change of attitude.

HMRC has of course always been there to collect tax. But, in recent years, and especially after the pandemic, its attitude has been relatively supportive. They’ve often allowed extended periods to clear debt under a time to pay arrangement.

Now, for understandable reasons, and as set out in the Chancellor’s Spring statement, the need to collect tax has hardened HMRC’s approach. Therefore, many more companies are being forced into liquidation.

The statement also makes it clear that HMRC will make more use of its powers to collect tax from directors personally where it feels that there has been egregious tax avoidance.

How can I best deal with HMRC debt?

Approaching HMRC about a debt you can’t pay can be a daunting prospect. Nevertheless, our experience is that it is always better to take the initiative and engage with HMRC than to ignore the problem.

There are some basic ground rules for negotiating with HMRC:

• HMRC’s starting point is that its debt must not increase, so the business must be generating enough cash to meet its current accruing liabilities
• Don’t over offer – it is very hard to persuade HMRC to renegotiate on a failed time to pay arrangement so make sure that the company can afford the proposed payments

How can PKF Francis Clark help?

We have specialists who know exactly how the relevant HMRC departments work and can engage with the section most likely to help.

We can maximise the chances of a successful approach by:

• Reviewing and structuring the offer in a way that is both realistic and likely to be acceptable to HMRC
• Looking at the different taxes that are owed and considering how best to deal with
• Making the approach on your behalf and help in negotiations

We speak their language!

What if negotiations break down?

If it is not possible to agree a payment plan, the debt will be passed to HMRC’s insolvency service. It is very difficult then to stop the inexorable progress to a winding up petition. This has immediate and far-reaching legal effects on the ability of a company to operate – and subsequent liquidation.

In those circumstances, time is short. And directors need to take urgent action to ensure that they are acting in the best interests of the company and its creditors. By doing this, they will also minimise the risk of breaching their statutory duties and risking personal liability for wrongful or misfeasant trading.

Our restructuring team can review the options available and work with the directors to implement the optimal strategy in the circumstances. These can include:

• Refinance – our deals and restructuring team has specialists in raising all types of finance
• Creditor restructuring by informal or formal process – for example, a company voluntary arrangement (CVA)
• An accelerated disposal process leading to a prepack administration to save jobs and preserve going concern asset values

And if there are no viable options to keep the company or its business going, we can help in an orderly wind down and liquidation.

The chances of a positive outcome are much higher if you recognise and address the problems early on. So, if your company is struggling to make its payments to HMRC, get in touch to see how we can help.