These can sound extremely threatening but don’t panic and do contact an Insolvency Practitioner (IP) for advice. Don’t forget that these are, by and large, standard letters and the IP has only to read one to know the exact stage you are at in your dealings with HMRC. Your IP can also read between the lines and knows the implications of each type of letter, and indeed, can even judge the exact phrases used by HMRC. So let’s look at the different types of company debt, and how to deal with each of them.
If your company can’t pay its VAT bill
If you’re VAT registered and collecting VAT each month, you should be accounting for the VAT quarterly. But many companies who are doing this in good faith, can be shocked to find during a visit from the VAT inspector, that they have been calculating the VAT incorrectly. They can find that they have been reclaiming VAT on the wrong basis, for example, or not collecting VAT where they should have been. This can lead to a sudden, large bill from HMRC that the company is unable to pay.
Alternatively, cashflow problems may have led to borrowing from the VAT fund, leading to a shortfall, and HMRC VAT arrears. In these circumstances, you should contact HMRC immediately and explain why you can’t pay. If you feel that the current cashflow problems are temporary and you can persuade them that this is the case, they can give you time to pay by setting up a payment plan. However, there may also be a penalty and there may be a VAT surcharge. Don’t try to fob them off with excuses, while investing the VAT money in more trading. They will want to see that you sincerely intend to pay as soon as the cash is available.
“Time to Pay” HMRC can give you up to a year to pay off your arrears, including any surcharges, month by month. However, if you don’t stick to this “Time to Pay” plan, they will come back in full force with an added penalty. As soon as you miss a payment, your previous agreement with them is cancelled, so make sure you’re able to meet the monthly payment amounts. And you don’t want to mess with HMRC as they are allowed to send in the bailiffs without going to court in these circumstances. However, they have to answer to the government, and all governments want to encourage businesses. So HMRC will be reasonable if approached in the right way. Again, an IP will be able to advise and guide you in this process.
VAT – The Surcharge Notice
HMRC will send this out the first time you “default”; that is, you don’t submit a VAT return, or your VAT payment is late. The first letter simply tells you that your company may be liable to a surcharge during a period beginning on the date of the notice and ending a year after your last default. So they’re watching you. If you don’t pay, or pay late during this period and you owe VAT, HMRC will now send out a “Surcharge Liability Notice Extension”. The period during which they can surcharge you gets extended and they’ll also tell you how much extra they’re going to charge you. The amount they charge is a percentage of the VAT you should have paid. But if you keep defaulting and missing payments, the percentage goes up.
VAT – Special arrangements for small businesses
There are special arrangements for small businesses which are not quite so strict, at least for a first default. Talk to an IP and they will be able to advise you on whether your business qualifies and how to go about getting a less rigid regime, and some support.
If your company can’t pay its Corporation Tax
Corporation Tax (CT) is due nine months and one day after the end of the company’s financial year. If your company can’t pay its corporation tax bill, HMRC automatically charges interest on the outstanding amount by the day. However, in a fit of reasonableness, they don’t charge interest on any outstanding interest they previously charged. And the good news is that late payment interest is deductible from CT the following year (not immediately).
Needless to say, after this it all becomes rather more complex in terms of the interest charging periods. So your best bet is to talk to your IP if your company is in a situation where you are paying interest on Corporation Tax, particularly if you feel you cannot pay this bill or meet your ongoing CT liabilities.
If HMRC sends you a ‘Notice to deliver a Company Tax Return’ but you fail to file your company return when you should, the company will get a penalty. So even if you can’t pay, it is a good idea to get the return in on time to reduce the total penalties. Companies have a right to request that they repay CT in instalments and as with the other types of company tax debt, you can request a Time to Pay arrangement. However, be aware that this does nothing to reduce the total amount of tax owed and it is up to HMRC to decide whether they think your proposed repayment schedule is reasonable.
“Time to Pay” for Corporation Tax
In general, HMRC looks for a repayment period of three to six months and they are not usually willing to look at arrangements where repayment will take longer than a year. Like many organisations, HMRC makes a lot of its decisions on a risk assessment basis and will be looking at your company in terms of the risk of it not paying at all.
So if they think the outlook for your company is deteriorating, they can withdraw from the deal. It will really pay to talk to an IP about this, because there are various ways of approaching this problem, other than a Time to Pay arrangement.
If your company can’t pay its National Insurance / PAYE
If your company has employees, including you if you pay yourself a salary, then it has to collect and pay National Insurance Contributions (NICs). The company deducts the employee’s national insurance from their pay. It then adds the employer’s national insurance and pays this to HMRC monthly. There may also be income tax (PAYE) that has been deducted to be paid as well. There are penalties for late payment, especially if it happens regularly.
Like the VAT surcharges, these are percentages of the amount owed to HMRC and the more often you are late, the more the percentage rises. The same penalty regime applies to the tax you deduct from employees (PAYE). If you fail to pay for three months, then HMRC will consider you a habitual defaulter and move to enforcement action which is described below.
“Time to Pay” – NI and PAYE As with other types of late payment, you can negotiate a “time to pay” agreement but, again, if you don’t keep up with the repayment plan, HMRC can cancel it. So what happens if the worst comes to the worst, you are unable to pay what you owe HMRC, your “time to pay” plan is cancelled and HMRC sends a letter threatening action? A visit from the HMRC Field Force This is a group of people employed by HMRC to enforce tax repayments from local businesses. Initially, they will probably just visit the business.
On this first visit they are checking that the address and other details are correct, and they will seek to have a conversation with the Directors about paying the debts.
Next, HMRC will send you an Enforcement Notice telling you that it is going to enforce collection of the debt. It’s likely that a field officer may serve it in person and HMRC will charge £75 for doing this. Be careful to check the field officer’s ID card to confirm who they are.
You now have seven days to pay the debt. At this point, you still have the option of paying the debt off in full. If you haven’t already had a Time to Pay arrangement, you can still negotiate one.
If you don’t do anything, company assets could be seized, so you must act. If the debt isn’t paid, the field officer will return with a Control of Goods Agreement and ask you to sign it. You are agreeing that you cannot move, sell or destroy any goods covered by the agreement, and you will also assent to a number of other conditions, such as allowing the officer to come back at any time. If you sign the agreement, you get another 7 days to either pay in full or reach a repayment arrangement. If you still can’t pay, HMRC is likely to seize the goods, issue a winding-up petition for the company, or both.
Some of the HMRC field force act as bailiffs, to seize goods to be sold at auction. However, HMRC also employs third party firms to act as bailiffs (it obligingly lists these on its website).
Bailiffs can collect debts below £5,000 and High Court Enforcement Officers can collect at all levels, including those over £5,000. As anyone who watches TV shows about these officers will be aware, they will use the Controlled Goods Order to take control of goods to the value of the debt, and can remove them for sale at auction.
If this is your company’s situation, you should get informed advice from an Insolvency Practitioner (IP) as soon as possible. Even at the stage where goods are about to be seized, an IP can still try and arrange a Company Voluntary Arrangement (CVA) to sort things out. But really, there’s no need for it to get this far. If you take expert advice as soon as you suspect that you can’t pay your tax bill, you have numerous options.
The longer you leave it, the more those options reduce and the more you find yourself in the grip of circumstances you can’t control.