What happens when you receive your next VAT bill from
HMRC and realise you simply can't pay? At first you might
think you're experiencing a minor cash-flow problem, but before
you know it, this could turn into an inability to replace stock or
even pay your suppliers. What started as one bill you had
underestimated or not properly accounted for can quickly turn into
a fight for survival.
If you have an HMRC debt that you're struggling to pay, you
need to act now. Burying your head in the sand will only lead to
the escalation of the situation. If you fail to comply with HMRC,
you will be hit with penalty charges and could even have assets seized to pay the debt and
associated costs. HMRC can also start winding up proceedings if the
debt isn't addressed.
Initially, this will take the form of a statutory demand. This is a formal
demand for payment of the debt, which gives you up to 21 days to
respond. If you fail to respond during this time, HMRC can then
send you a winding up petition. If you still fail
to take action, this can lead to the permanent closure and
liquidation of your business.
However, even if you do not have the funds available to pay the
HMRC debt, there are steps you can take to prevent HMRC from
winding up your business:
Write to HMRC
Communicating with HMRC throughout the process is essential.
Reaching a Time to Pay arrangement with HMRC is one potential
solution to this problem, but first you might want to try writing
to HMRC with an offer of a payment plan.
You should send a letter to HMRC via recorded delivery
explaining why you are having difficulties, the amount you can
afford to pay and over what period. To stand any chance of success
you must be reasonable, but still offer to pay an amount you can
Speak to the 'Time to Pay' team
When times are hard, a Time to Pay arrangement can allow you to
spread your repayments over a longer period of time. When
negotiating with the Time to Pay team, it's essential you only
agree to a repayment schedule you can realistically afford, as any
missed payments will lead to the cancellation of your plan. You
should also keep in mind that HMRC will insist that all other
ongoing taxes are paid promptly when due. For this reason, it is
advisable to work with an experienced professional who can negotiate with HMRC on your behalf.
Propose a company voluntary arrangement (CVA)
If you cannot reach a Time to Pay arrangement with HMRC, you can
propose a company voluntary arrangement (CVA)
with the help of an insolvency practitioner. If agreed, a CVA will
allow you to pay your debts over a period of up to five years while
you continue to trade. Simply proposing a CVA will also buy you
time, as all ongoing legal action will cease while HMRC considers
Obtain an administration order
If you are unable to pay your debts to HMRC, the company can
obtain an administration order which will stop
any legal action being instigated or continued. The administration
will be managed by an insolvency practitioner, who in effect
becomes the chief executive of the company. Their primary objective
is to rescue the company by restructuring its financial affairs. If
the company can't be rescued, its assets will be sold off for
the benefit of HMRC and any other creditors.
Even if the company can't be saved, at least this course of
action will prevent a compulsory liquidation, which could
lead to a director disqualification or personal liability for a
proportion of the company's debts.
Dispute the debt
If the debt HMRC claims you owe is unfair or inaccurate, you can
dispute the debt. However, you should only dispute the debt if you
genuinely believe a mistake has been made. This is a serious
allegation known as 'abuse of court power', so it's
certainly not a strategy that should be used as a delaying
How can we help?
If you have been served a statutory demand or winding up
petition, please do not delay in contacting us. The sooner you get
in touch, the more effectively we will be able to handle the
matter. Please get in touch with our experienced
advisers today for a cost- and obligation-free discussion of your
circumstances, with complete confidence assured.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under current law, where a business subject to corporation tax or income tax reallocates an existing asset into its trading stock, the basic rule is that there is a deemed market value disposal of the asset...
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