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As a business, you may get credit from other companies and organisations, meaning that you owe them money as a debtor. When this occurs, it is crucial to pay the debt once it is due to avoid the other party taking legal action. One of these parties is His Majesty’s Revenue and Customs (HMRC), the UK Government’s tax department. Where you do have HMRC tax debt, they will enforce the debt against you through their debt collection process. As a result, you should be aware of your options and what steps to take. This article will explain the HMRC debt management process and how to respond to HMRC debt enforcement.
What HMRC Debts Could My Business Fall Into?
Your business could fall into various HMRC debts if you do not keep your tax account up to date. These include:
- VAT debt;
- corporation tax; or
- PAYE.
If you do get into debt with HMRC, they will not ignore what you owe, and as a large organisation, they have an array of enforcement measures to recover your debt. Furthermore, HMRC debt is not statute-barred, meaning there is no time limit in which they can collect outstanding debt.
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How Does HMRC Manage Their Debts?
If you fall into debt with HMRC they will initially send you reminder letters. However, if you still fail to pay the debt, HMRC will issue a ‘final opportunity letter’ or a notice of enforcement. Below, we look at what can follow from this as part of the HMRC debt management process.
HMRC Debt Collection
If you fail to pay your tax debt through the final opportunity letter or at the end of a notice of enforcement letter, HMRC will pursue the debt collection from your business. They will do this by using either a:
- Field Force or Distraint Officer; or
- third-party debt collection agency.
A Field Force or Distraction Officer is a trained employee within HMRC. They will visit your business and offer you the opportunity to pay off some of your debt. If this is not possible, you may have the option to agree on a Time to Pay (TTP) payment plan with them. This is a payment plan to provide you with extended time to get your account out of arrears. All of your HMRC debts will be included in this and should be paid off at the end of the timeframe. Furthermore, any tax accrued during the TTP payment plan should also be paid.
Alternatively, HMRC may decide to ask a third-party debt collector to collect the debt from your company when they visit your business. In this case, the collector aims to take payment of the debt or, where this is not possible, seize your assets. They will then sell these to make a payment towards the debt you owe HMRC.
Winding-Up Petition
Another way HMRC may manage debt is to issue a winding-up petition, which could result in your business falling into compulsory liquidation. A winding-up petition is possible where your business owes any creditor more than £750. Once issued with one, you can no longer sell your company or any of its assets.
Getting a winding-up petition from HMRC is something you should seek to avoid, as it may suggest that your business is being forced to close down. It may be possible to oppose the winding-up petition, but this can be a complex process. Therefore, you should seek experienced legal advice before initiating an opposition.
Company Administration
A potential option if you have an HMRC debt that you cannot pay is company administration. This is where company administrators examine your business situation to determine if it is in a position to continue. This can lead to either:
- Company Voluntary Arrangement (CVA): This allows your business to trade while formally implementing the HMRC debt through an agreed-upon repayment plan.
- Creditor’s Voluntary Liquidation (CVL): This could occur if the repayment debts for HMRC are unmanageable for your business. CVL will stop your business from trading, and your assets will be sold to pay the debt.
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Key Takeaways
Being a debtor can be stressful for any business, especially where your creditor is HMRC. If you owe HMRC debts, such as PAYE or VAT, they will pursue you for it, so it is essential to take action and get legal advice. Importantly, HMRC has no time limit in which to recover the debt. The debt management process begins by sending your business reminder letters and a final opportunity or notice of enforcement letter. If you fail to pay at this stage, there are multiple pathways HMRC can take to recover your debt, including:
- enlisting one of their trained employees or a third-party debt collection agency;
- issuing a winding-up petition; or
- prompting your company to go into administration.
If you need help understanding HMRC debt management in the UK, LegalVision’s experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
In short, yes. HMRC is not statute-barred, meaning that there is no specific time limit within which they can enforce and recover the debt you owe them.
HMRC will provide you with opportunities to repay your debt before taking more serious measures. However, if you cannot repay, then they may implement a gradual repayment plan (TPP) or enlist a third-party agency to take payment. There is also a chance that they will issue a winding-up petition, which prevents you from selling your company or assets.
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