How businesses can manage their tax debts with HMRC

There is a clear message coming from HM Revenue & Customs (HMRC): if you need support, get in touch.

As expected, the amount of debt owing to HMRC has grown substantially over the last 12 months.

Whilst HMRC’s duty is to collect this debt, it has taken a proactive and supportive attitude. To do so, however, it needs to know what is going on. 

Enforcement to support

HMRC’s debt management team has shifted its focus from enforcement to support and assistance.

During 2020/21, Field Collection Visits reduced by around 99% from hundreds of thousands to between 1,000 to 2,000.  

HMRC is more willing to implement time-to-pay arrangements where possible on more relaxed terms than would have been seen pre-pandemic.  In some cases, the arrangement will automatically be approved on application.  

Ultimately, however, it will expect all tax due to be repaid, just over an extended period.

It is therefore important to ensure that any agreement with HMRC is affordable.  

Leisure and hospitality sector

Although non-essential retail is now allowed to open, several types of business - specifically in the hospitality and leisure trade - remain closed or are subject to trade with restrictions.  It is anticipated that these restrictions may lift as early as 17 May, but this remains a provisional date.  

If these businesses are unable to open on this date, they may find any payment agreements with HMRC are unaffordable.  Open and transparent communication with HMRC will enable it to support businesses where the unexpected arises.

Whilst we are beginning to see the ‘friendlier’ side of HMRC, there is evidence to suggest there are businesses with the ability to pay but are choosing not to. In these cases, HMRC will continue to pursue payment. 

HMRC has paused its use of analytical models to test companies’ prospects, but this is only temporary. HMRC will use forecasting to understand companies and their futures to understand if their proposals are realistic and if tax is at risk of underpayment. 

Preferential status

During this year HMRC regained preferential status in insolvency appointments.  In respect of many taxes, HMRC will now rank ahead of floating charges and unsecured creditors.

This increases the chances of HMRC being repaid partially or even in full in the event of an insolvency. This reduces available funds for other creditors.

Lenders have become concerned about their reduction in priority and are revising the analytic models for lending.

Its unlikely that HMRC are the only creditor of a business, and suppliers who are going to be facing their own pressures may be less supportive to a struggling business. Nearly all businesses will come out the other side of the pandemic with a few bruises. 

Establishing a strategy to maintain historic liabilities, working capital requirements, necessary investment and growth will be a difficult juggling act.  

Further help available

If your business requires a review and some possible restructuring in order to be more effective and efficient, please contact our Restructuring Team for a conversation.

You can also check out our other articles and guides in our Restructuring Knowledge Hub.