HMRC is the largest creditor for UK businesses, and it’s crucial you pay your tax bill on time, or you could face penalties.
If you fail to deal with your company’s tax arrears, HMRC can use a debt collector to recover what they are owed. This includes outstanding Corporation Tax, PAYE, and most commonly, VAT.
Will HMRC Use Debt Collectors to Recover Debts?
If you cannot pay your tax bill, HMRC can use a debt collector to recover the money you owe. When your Limited Company owes money to people or organisations, they are known as creditors. Often HMRC is the biggest creditor for a Limited Company when it has not, or cannot, pay its tax bills.
HMRC has plenty of resources at its disposal when it comes to chasing companies or individuals that owe it money. However, that pressure can soon mount up, and before you know it, they could be forced to take action against you, which is not good for either party.
You must never ignore your outstanding debts to HMRC. Doing so could result in your business being ordered into Compulsory Liquidation, also known as a Winding Up Order. This happens when a company is forced to liquidate its assets due to an inability to pay its debts.
You can take steps to protect yourself and your business and keep the debt collectors away from your door.
Communication is key if you are struggling, and they will likely be more understanding if you explain your situation. They will generally only use enforcement powers as a last resort, depending on the circumstances.
HMRC works with several different debt collection agencies that work on their behalf to settle your debts. You’ll find a list of them here.
Every debt collection agency HMRC works with is regulated by the Financial Conduct Authority and must adhere to their guidance and processes.
What Happens During an HMRC Debt Collectors Visit?
HMRC stresses that debt collection is used as a final resort, and you will have opportunities to ensure it doesn’t come to that.
If you miss your initial payment, you will be sent warning letters, followed by a Final Opportunity Letter if you fail to act.
HMRC may accept a Time To Pay Arrangement (TTP). This will allow your debt to be paid back in monthly instalments, typically over 12 months.
This option is only available to companies that are considered viable and have positive payment histories with HMRC.
It’s essential to be honest. If HMRC officers find out you have misled them during the application process, they can cancel the agreement.
If your company fails to make payments on your due dates or you incur new arrears, HMRC has the power to immediately terminate any arrangement. They may also insist that all debt is paid in full right away.
An appointed debt collector has the power to take control of your assets and sell them to recover the debt for your creditor – in this case, HMRC.
This action is covered in England and Wales by the ‘Taking Control of Goods’ regulations.
How Does the HMRC Debt Collection Process Work?
If you have received warning letters from HMRC and have not acted, you will receive a visit from an Enforcement Officer (also known as an HMRC Field Officer) who will ask you to pay your debts.
If you fail to or cannot pay, you will be issued an Enforcement Notice, and the officer will compile a list of your possessions. These may then be sold to cover your debts and any costs for selling the items, such as advertising or auctioneer fees.
When you receive an Enforcement Notice, you’ll have a week to repay your debt in full or negotiate a payment plan with HMRC.
These officers have the power and authority to negotiate a settlement plan for debts of up to £100,000.
If you fail to negotiate a Time To Pay Arrangement or cannot settle your debts completely, HMRC Enforcement Officers or bailiffs will likely seize your non-essential business assets.
The officer will either take your possessions immediately or ask you to sign a Controlled Goods Agreement.
This agreement will include a date by which you must pay what you owe them. You may continue to use the items on this list, but you are forbidden to sell or give them away.
What Happens if You Can’t Pay Your Company Tax Debt
The amount of money you owe will affect what happens next if you can’t pay your company tax debt.
Depending on the type of relationship you have with HMRC, you might receive a statutory demand – which is a formal request for payment.
HMRC has the power to issue a Winding Up Petition against your company if you cannot pay within 21 days or challenge their demand within 18 days.
If you are subsequently taken to a county court and receive a County Court Judgment (CCJ), non-payments can be used as evidence that your company is bankrupt.
You will be given 14 days to respond to this, after which you can request an additional 14 days to arrange a possible repayment plan.
Final Notes on HMRC Debt Collectors
If you’re struggling to pay your company tax bill, remember that you are not alone. There are several reasons why you may be late or unable to meet payment deadlines to HMRC.
The most important thing is to be transparent. You will only make things worse by withholding information about your situation or sticking your head in the sand.
Futures Strategy helps business owners and directors all over the UK. We’re experienced in dealing with HMRC and can help you understand your options.