R3, the UK trade body for Insolvency Practitioners, has recently published the results of a survey in which 71% of IP’s questioned believe that HM Revenue & Customs (‘HMRC’) have made the insolvency process harder to manage in the last few years.
Three key findings from the survey are as follows:
- Over 54% of insolvency practitioners had to wait over three months for clearance from HMRC to close their last case; 25% waited between six months and a year.
- 50% of insolvency practitioners say that HMRC is one of the creditors they look forward to working with the least.
- 49% of insolvency practitioners had to wait longer than 15 minutes the last time they called HMRC before their call was answered/cut off/they hung up; 25% waited over half an hour.
These findings broadly reflect our own experience of dealing with HMRC in recent years and whilst some of the performance issues encountered can undoubtedly be attributed to government cutbacks, the service is operating below the expected standard with a clear impact on case progression.
It’s one thing insolvency practitioners complaining about HMRC, but we are finding increasingly that business owners cite difficulties in communication with HMRC as being a contributing factor to their business problems. Even Meg Hillier MP, Chair of the Public Accounts Committee made the following comment:
“It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share.”
So for a director of a company battling adverse trading conditions it’s more critical than ever to take a pro-active approach with HMRC where a PAYE or VAT payment has been missed, or is likely to be, in order to avoid a breakdown in communication. Missed payments can lead to a build up of taxation arrears which will result in penalties and may even culminate in legal action and the instigation of winding-up proceedings against the company by HMRC.
With a company director in mind, we have prepared a three step guide to help them focus on the key issues whilst dealing with HMRC and taxation arrears, which should ensure that the director remains in control throughout discussions:
1. Pay the tax from personal funds
If you believe that the current difficulties that have prevented the business from being able to pay its tax liabilities on time are little more than a hiccup or the result of a combination of factors unlikely to be repeated, then you may wish to consider making a short term loan to the company to enable it to pay off the outstanding tax.
Given that HMRC will charge penalties and interest on outstanding PAYE and VAT, the sooner any arrears are cleared, the better. However, before doing so it is important to have established with a degree of certainty that the Company will soon be in a cash positive position and able to repay the loan. It’s also important to establish and document that the Company is solvent (i.e. its assets are greater than its liabilities) at the point at which the loan is repaid to you.
2. Negotiate a Time to Pay arrangement with HMRC
If you are unable to make a loan to the company it is important not to bury your head. Make contact with HMRC and seek an extension of the payment deadline. Hopefully, the company will be able to discharge the tax liability before the end of the extension period, but we would recommend planning for the worst case scenario at the outset of your conversations with HMRC. Therefore, during any extension period, or even before your initial contact with them, prepare a business plan setting out the factors that have given rise to the current difficulties and how they are going to be addressed going forward. Put together some cash flow forecasts, a rudimentary forecast if necessary but ideally prepared by the company’s accountant in order to demonstrate how it is intended that the arrears will be repaid. Submit this document to HMRC with a request for a ‘time to pay’ arrangement with HMRC. In our experience, such requests stand a far higher chance of success when accompanied by comprehensive information. If you would prefer, we can help you prepare this information and negotiate with HMRC on your behalf – just contact us.
3. Seek our advice
If your attempts to negotiate a time-to-pay scheme with HMRC have failed, or you simply feel that your company will not be able to recover quickly enough to meet all ongoing overheads and expenses as well as repay the accrued taxation liabilities, then you need to speak to us.
We can help in rapidly assessing the status of the Company and the options available to you: Administration, Company Voluntary Arrangement or Liquidation.
Act quickly. It’s always better to seek advice early when the fullest range of options will be available, rather than wait until you are forced into taking action. An initial conversation costs nothing, but it may well ensure that your business recovers.