HMRC Debt is a huge issue. Non payment by businesses can lead to real problems for Businesses. Many businesses don’t submitVAT returns or pay VAT – sometimes for 4 or more years. It can be surprising how long HMRC can take to catch up with these non-payers, but they will and when they do, then the real problems start. This article looks at what powers HMRC has when it is owed tax monies and suggests early communication is the best way to address the problem, such as using chartered tax advisers.
Some businesses don’t completeVAT returns but do pay the assessments that were sent by HMRC. Other businessessimply ignore the assessments and don’t even submit the returns or pay anything!This is a very risky strategy because paying HMRC is a statutory requirement.
HMRC Catches Up With the Non-Paying Business in the End
When HMRC catches up with the non-paying business, they will start recovery action.Business advisors and insolvency practitioners know that HMRC have 3 major issues over non-payment of VAT and Tax.
1. HMRC has to trade with a business – if a client needs to charge VAT, then HMRC become an “involuntary creditor”. HMRC only know what a business owes them from the forms they receive. They can, and do, issue assessments but these tend to be much lower than the true amount of VAT payment owed. So even if the assessment is paid, it usually means the HMRC Debt is still growing. Even if an assessment is paid, itdoesn’t replace the obligation of a business to submit accurate returns on time.
2. HMRC is legally empowered to collect the debts owed to them and they have wide ranging debt enforcement powers. These powers can lead to Bankruptcy or a Winding Up order.
3. They also try to make sure offenders can’t offend again. Many traders start up a new business after their 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 “deposit” to be held against any future compliance failures.
When they Come Knocking, Cana Business negotiate a Time to Pay Arrangement?
HMRC’s willingness to agree to ‘time to pay settlements’is lukewarm where there has been serious and on-going non-paymentof Vat and Tax. Those businesses that are long term and repeated offenders will be facing significant action from HMRC and therefore, almost inevitable insolvency.
Where a limited company is involved, a Liquidator or Administrator – often an insolvency practitioner – has a statutory duty 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. Typically, HMRC makes c.80-90% of the creditors and the Directors of these companies are at risk of director disqualification proceedings.
Communication is key
The causes of unpaid and mounting HMRC debt are many and varied, but they are almost always a sign of a business that is insolvent. HMRC like to be communicated with and kept informed of problems, AND sooner rather than later. An informed HMRC is more likely to be open to some form of time to pay arrangement and that gives the under pressure business a breathing space to turn itself around.
The moral of this tale is that HMRC will almost always catch up with businesses that owe them money, and the penalties can be harsh. It is always advisable to talk with them early and work out a turnaround plan.