The HMRC Survival Guide

11 April 2024

A worrying trend has emerged at HMRC over the past year – and it threatens the survival chances of businesses hit hardest by the UK’s dwindling economic fortunes.

With tax debts spiralling to £120bn due to the economic earthquakes of covid and the cost-of-living crisis, HMRC are quickly losing patience with companies that fall behind on paying their bills. They are now more willing than ever to resort to enforcement tactics.

Last year, close to 3,000 UK companies were forced into compulsory liquidation by their creditors, and HMRC was, by far, the most aggressive in pursuit of funds due. In the first half of 2023 alone, they issued winding up petitions against 1,522 firms. That is a 300% rise on the same period in 2022.

The result has been a rush of UK companies being ordered by the courts to close their businesses down for good.

The causes are twofold. HMG needs the money, and liquidation has become an easier way of obtaining it.

The government considers HMRC to be key players in its drive to restore the UK’s finances after the pandemic, so the pressure is on for them to call in their debts more quickly. Meanwhile, with the repeal of the Enterprise Act in 2020, HMRC has regained its preferential creditor status. This has made it far simpler for them to recoup their losses from the sale of a company’s assets after liquidation.

The bad news for British businesses does not end there.

HMRC are offering fewer Time to Pay agreements, which were traditionally a route for companies to pay their debts in manageable instalments, and setting ever more stringent conditions on when they do.

All in all, there has never been a worse time to be in debt to the taxman. Thankfully, there are actions you can take to protect your company. Here are a few measures you can take immediately to lessen the risks of liquidation.

Improve your accounting practices

Decent cashflow forecasting is key. Make sure you understand what your commitments look like well ahead of time and put money aside to meet them. Opening a separate ‘tax account’ can help you stay organised. I recommend transferring over enough funds each month to cover any future VAT payments or other tax commitments.

You should also avoid using your company account as a personal bank account. Keeping the accounts separate will make it easier to check you have sufficient reserves in the account (after the deduction of future liabilities) before declaring dividends.

Staying on top of your accounting is critical to your company’s future success, so it is well worth investing in the resources to help you do this. Depending on the size of your company, this might mean hiring a good accountant or in-house financial officer or making use of one of the excellent accounting software options on the market nowadays.

Seek professional support

Time to Pay agreements may be thin on the ground, but it is still possible to get one, particularly if you have the right person arguing your case. A good insolvency practitioner will know how best to approach the tax office to increase your chances of a positive response, so I recommend letting them handle the negotiations for you.

They can also help you create a strong recovery plan for your company, advising you on everything from debt consolidation to restructuring. This could help convince HMRC you will be able to repay what you owe, if given a little breathing space, and tip the balance in your favour.

Meet your obligations

If you are granted a Time to Pay agreement, it is imperative you do not breach it.  We are seeing little mercy from HMRC for those who fail to meet their obligations. One second chance is all you will get, so do not make the mistake of trying for another. If you think you might be at risk of missing a payment, contact an insolvency practitioner immediately for their advice.

Act fast

If you have an outstanding balance with the tax office you are struggling to pay, you will need to act quickly to protect yourself.

A winding up petition can be issued against you with alarming speed, often with as little as one weeks’ notice, and once legal action has begun it could be too late to prevent your company’s closure. But act quickly, and seek out the right professional help, and your business can make it through these hard times.

It may even come out stronger on the other side.