HMRC petitions and debt recovery

Directors are facing challenging financial and operational pressures at the moment. One such pressure is the increased call in of tax debts following the removal of prohibitions on Winding Up Petitions.

Through the pandemic, HMRC reduced their pursuit of unpaid taxes from businesses. However, their debt collections are now returning to normal.

Although HMRC are focusing their resources on pursuing the most egregious tax cases, this is likely to shift to those cases where errors were made and not corrected.

HMRC petitions and crown preference powers
HMRC do not have a time constraint on petitioning for recovery of debt, which means that even tax liabilities that were accrued by business before the pandemic will continue to be chased.

Added to this, HMRC have crown preference status, which places their debt as higher-ranking creditor in an insolvency. This grants HMRC preferential status in respect of any unpaid VAT, PAYE and NIC debt in any liquidation or administration initiated after 1st December 2020.

For directors where significant tax debt is owned, this is a pressure that will only increase over time if remedial action isn’t taken.

How can I resolve my tax arrears with HMRC?
Although HMRC have significant powers, they are fair with directors when it comes to arranging a debt repayment plan, provided the business can show capacity to repay their debts.

First and foremost, you should contact HMRC as soon as is practically possible. Opus Restructuring and/or your accountant will be [email protected] able to assist with this process and provide cashflow and business commentary to support your position.

HMRC will assess the business’s accounts to consider its solvency and decide if a payment plan is suitable.

If the business is financially viable, but cannot pay in full due to cash flow problems, HMRC can offer a Time To Pay arrangement. This gives directors the breathing space needed to repay their tax arrears, usually through a payment plan for a period not exceeding 12 months.

An important point to note for directors is that while they are generally protected by limited liability, the recovery powers granted to HMRC mean directors can face greater personal liability for tax debts held by the company in the event of insolvency.

For this reason, directors should consider seeking assistance from a specialist to reach an acceptable and achievable agreement with HMRC, particularly if there are significant and complex tax arrears that are owed.

A free and confidential consultation can arranged with Ian McCulloch at the Preston office of Opus Restructuring & Insolvency by calling 07854 031177 or e-mailing [email protected]