‘What will HMRC do if my company owes them money?’ is one of the more frequent questions our clients ask.
HM Revenue & Customs (HMRC) are responsible for collecting taxes from companies and individuals.
But what happens if YOUR company owes them money?
With plenty of resources at their disposal when it comes to chasing organisations that owe them money, HMRC can put you under pressure before you know it.
They will not hesitate in taking action against you once they suspect that your organisation is insolvent.
So, as soon as you know you are likely to miss a payment, or you’ve received a bill that you can’t pay, the best thing to do is contact HMRC as soon as possible to try and come to some arrangement.
Being proactive in the first instance shows that you are not withholding any payments on purpose. Instead, you don’t have the means to pay your debt at that time.
Here are seven steps that HMRC can take if your company owes them money for non-payment of tax:
1. You will be sent a warning letter
If and when you miss your initial payment, HMRC will send warning letters that will subsequently lead to a Final Opportunity Letter if not acted upon.
HMRC might be willing to accept a Time To Pay Arrangement, which will allow for your debt to be paid back in monthly installments, typically over up to 12 months.
However, this option is available only to companies seen as viable and have displayed positive payment histories before with HMRC.
2. You will receive a visit from an Enforcement Officer
If you have been sent warning letters and have failed to make payments, you can expect a visit from an Enforcement Officer (also known as an HMRC Field Officer).
These Field Officers have been given the power and authority to negotiate a debt settlement plan with your company for debts of up to £100,000.
If you don’t access relevant funds to implement such a plan, you will be issued an Enforcement Notice.
3. Getting an Enforcement Notice
When you are issued an Enforcement Notice, you’ll be given seven days to repay your debt in full or negotiate a payment plan.
If you fail to negotiate a Time To Pay Arrangement, or you cannot settle your debts completely. HMRC Enforcement Officers or bailiffs will likely seize your non-essential business assets.
4. HMRC will then list, seize and sell business assets
The Taking Control of Good Regulations allows HMRC officers to enter your business premises and list assets or goods for potential sale equivalent to the debt value, in addition to the cost of enforcement.
These assets will be listed on a Controlled Goods Agreement, which you will be asked to sign. Any goods listed will remain on your premises but under the control of HMRC, which means you will not be able to trade or sell them.
If you fail to negotiate a Time To Pay Arrangement after seven days, or you cannot settle your debts completely, these assets will be seized and subsequently sold at auction to repay debts owed.
It’s important to note that if the funds they raise are insufficient to cover the arrears and associated costs, HMRC will still have the power to continue taking action against you.
5. HMRC will then take Court Action
Depending on your debt size, as well as the type of relationship you have with HMRC (I.e., if it’s the first time you cannot make the necessary repayments), you might receive a statutory demand (a formal request for payment).
HMRC may then issue a winding-up petition against your limited company if you fail to make payment within 21 days or challenge the demand within 18 days.
If your limited company is taken to a county court, and you 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, after which you can then request an additional 14 days to arrange a repayment plan.
6. You may be issued with a Security Bond Notice
HMRC usually requests security Bond Notices from directors who have had issues adhering to HMRC responsibilities in the past.
If this happens, you will know that serious action has been taken against you by HMRC to recover PAYE or VAT arrears.
The implication is that you must provide security in the form of a bond to HMRC.
And if you fail to make a payment at the appropriate time, it becomes a criminal offence if you continue trading.
If your repayments to HMRC eventually result in the winding-up of your company, it’s important to remember that any new establishment you set up may not be able to trade until the bond is paid.
7. Finally, HMRC may request a Winding-up Petition
Should your company fails to pay a statutory demand or CCJ issued by HMRC, they can petition the court to wind-up your company.
A winding-up order will be granted if the petition is successful, forcing your company into compulsory liquidation.
Please contact the Future Strategy team today if you would like any advice about dealing with HMRC.