During the coronavirus crisis, HMRC tax debt collection was paused as businesses struggled to cope with the disruption caused by the pandemic.
As economic activity resumes, however, things are returning to normal – which means that HMRC will soon start contacting those who have fallen behind with their taxes.
With many businesses having a backlog of taxes that will need to be paid as they emerge from the pandemic, it’s only natural that people are starting to feel the pressure.
This is especially true for businesses in sectors such as hospitality, leisure, retail and travel who will struggle to afford the extra costs of tax enforcement coinciding with the end of the furlough scheme, especially whilst trading still remains suppressed.
So, if you owe taxes and are struggling to pay, read on to find out what to do next...
Tax collection timeline
If your business has not paid 2020 and some 2021 VAT or PAYE liabilities, HMRC will start collecting in September.
UK business secretary Kwasi Kwarteng says that “HMRC enforcement during this critical period will be largely driven by a lack of engagement by companies with it, rather than just their inability to pay, and that using insolvency to enforce payment will remain a last resort”.
The likely timeline that HMRC will take to recover debt is as follows:
- HMRC will write to your company at its registered office warning that your company is in arrears and should start making payments immediately.
- Within 14 days of the first letter, a second letter will be sent out which will include a summary of the liabilities and a warning that unless the payment is made within 14 days HMRC will commence debt collection action.
- If you don’t make payment or organise a time to pay arrangement (more on this below!), you will receive a visit from an HMRC field enforcement officer or a debt collection company.
What to do next?
First things first, don’t panic! HMRC’s key message is, “if you can pay your taxes then you should – but if you’re struggling, we want to work with you to agree a plan.”
You can find out more about the government’s debt collection plans as we emerge from the coronavirus pandemic here, but in the meantime, we’ve outlined some important steps to consider below:
4 steps to take if you can’t pay your taxes:
1. Don’t bury your head in the sand
HMRC wants to work with people to find a way for them to pay their tax debts as quickly as possible, in a way that is affordable for you.
They typically have more than half a million arrangements in place at any one time, and even if you cannot pay anything straight away, by getting in touch they will understand your situation better and likely be more lenient.
2. Try to arrange a deferral
One such option is to arrange a deferral. If you can’t make a payment initially, you could arrange a short-term deferral which essentially gives you some breathing space.
Nothing would need to be paid for that set period of time, and no further action would be taken to collect the tax debt until that time has lapsed.
3. Agree to a time to pay arrangement
HMRC’s time to pay service provides companies with additional breathing space during which to settle their existing HMRC liabilities, so you can free up some cash and pay back what you owe gradually.
The scheme has been in place long before coronavirus but has been extended to support businesses who have been impacted as a result of the pandemic. A TTP arrangement allows for your debt to HMRC to be paid back in monthly instalments, typically over a period of up to 12 months.
4. Consider a recovery loan
The Recovery Loan Scheme, for example, is designed to support access to finance for UK businesses as they grow and recover from the pandemic. It is available for businesses of any size, with up to £10 million available per business.
Typically, businesses can access loans or overdrafts of between £25,001 and £10 million per business, or invoice or asset finance of between £1,000 and £10 million per business.
The government guarantees 80% of the finance to the lender, and the scheme is open until 31st December 2021. Discover how to apply here.
If you still don’t make a payment
If you still don’t make a payment, you may receive a seven-day warning letter. Essentially this means that if your company has no tangible assets, HMRC will demand full repayment of the debt within seven days, or it will issue a winding-up petition.
Additionally, the government has recently granted further powers of investigation to HMRC to investigate directors’ conduct with regards to the furlough scheme, business interruption loans and bounce back loans.
So, if your company enters liquidation, your conduct will be investigated, and you could even be disqualified as a director.
Need further expert advice?
If you are currently facing financial difficulty and are struggling to pay your debts, McAlister & Co can provide professional help and advice. Our friendly and approachable team are experts in insolvency and turnaround solutions for business and individuals.
So, if you need clear, strategic advice about the options available, contact us today.