What are HMRC Arrears?
You’ll find yourself owing HMRC arrears if you fail to pay your debts to HMRC when they fall due. They are the largest creditor when it comes to insolvencies, so again, please don’t think you are the only one, you are not alone.
HMRC collects regular finances from companies. Some of these can include VAT, corporation tax, PAYE and National Insurance contributions. As a business owner, it is your responsibility to keep up with these payments. Many directors will get behind on these payments and have the intention that they will catch up, but then their business hits a bump in the road. Perhaps they don’t get paid what they are owed, or they lose a customer, either way, they still cannot pay, and the problem gets worse.
What happens if I can’t pay HMRC?
HMRC are chasing businesses hard right now for unpaid VAT, Corporation Tax and PAYE. If you miss payment deadlines, they will step up the enforcement action. This could be in the form of phone calls and even bailiffs arriving at your business property.
Bailiff action is not nice for anyone to deal with, so it’s best to avoid it if possible.
If you can’t pay HMRC the money that you owe, you need to be honest and let them know. You will find yourself in a much better position if you are honest from the beginning. You could try phoning HMRC and saying, ‘I can’t pay my tax bill now, but I might be able to in a few months.’
The worst thing you can do with HMRC and tax arrears is ignore them. If you know you can’t pay on time, you must still file your return for the tax year. You can find yourself in more trouble for not filing information for your tax year than you might be in for not paying.
What is a HMRC Time to Pay arrangement?
HMRC can sometimes offer a Time to Pay Arrangement to allow company directors more time to pay their arrears. The arrangement allows you to pay your HMRC arrears in instalments rather than in one lump sum.
When negotiating a time to pay with HMRC, you will need to be honest. HMRC will decide whether or not this is an option for you based on the type of tax you owe them. You may be expected to pay interest on this, but the main benefit is that it gives you some breathing space when you need it most.
What are the penalties for failing to pay HMRC debt?
HMRC will chase you for a while before they decide to take more serious action. This can include bailiff visits or legal action. In some cases, HMRC may issue you with a winding-up petition as a result of tax arrears.
When you receive a winding-up petition, you will also be given a court date by which you should pay the income tax you owe. If you fail to pay the money by the date specified, you will face compulsory liquidation.
Compulsory liquidation is best avoided if possible, as it can lead to high levels of director scrutiny and a lack of control.
Dealing with HMRC in financial difficulty: what are my options?
Be honest with HMRC – If you choose to be open and honest with HMRC, they will be more likely to help you out. Remember that the person on the end of the phone is a human too. The reality is that if you’re a small business and you end up in liquidation, then HMRC won’t get a penny, so there is a good chance they will allow you time to pay.
Liquidation – If your business is in debt to HMRC, suppliers and more, you might be considering entering liquidation. Providing that you have acted responsibly as a director, HMRC debts can be written off in a creditors’ voluntary liquidation. Our experienced team can offer honest advice on liquidation and company closure. Seek advice at the earliest opportunity regarding HMRC tax arrears.
Company Voluntary Arrangement (CVA) – A CVA can give company directors more breathing space as they can restructure their debts to pay them over a longer period, normally 5 years. This agreement is a good idea for businesses that have genuine hope of survival. You will need to consider this thoroughly before entering into a CVA and take professional advice early.
How can we help with HMRC Arrears?
We offer guidance and support for all directors regarding company debts and financial challenges. Whatever you’re struggling with, we can help. We’ll assess your situation and let you know your options. Don’t spend more time worrying about HMRC debts, get in touch with Director First for professional advice.
