HMRC’s Debt Management and Banking Department (DMB) is a specific unit within His Majesty’s Revenue and Customs that has been set up specifically to recover debts that are owed by taxpayers. It collects debts from both individual and corporate taxpayers and has a powerful range of recovery powers, many of which are not available to other creditors.
If you owe any form of limited company tax that you are unable to pay, you should contact HMRC’s Debt Management Department immediately. You will be able to discuss your situation with an HMRC officer and potentially arrange an affordable repayment plan that will reduce the pressure on you and your business and prevent recovery action being taken.
Before you contact HMRC to discuss the recovery of your debts, it’s always advisable to speak to an expert. At AABRS® , we have considerable experience of HMRC’s debt collection processes and have successfully negotiated repayment plans for many companies in your position. Approaching HMRC in the right way and understanding how to negotiate a repayment plan will be beneficial.
In this guide, we’re going to discuss the powers of recovery of HMRC’s Debt Management Department and outline your options if you have company tax debts you’re unable to pay.
How can you contact the HMRC Debt Management Department?
HMRC lists 0300 200 3887 as its Debt Management line for authorised tax agents only. It is open from 8am to 6pm, Monday to Friday. If you are dealing with HMRC yourself, use the payment problems line for the tax concerned.
HMRC lists these payment problems lines for the tax concerned, for use when a payment is already overdue: 0300 200 3831 for VAT, 0300 200 3819 for employer’s PAYE, 0300 200 3840 for Corporation Tax and 0300 200 3820 for Self Assessment. The lines are open Monday to Friday, 8am to 6pm. Ringing before the deadline is still the best course, as explained below.
What information will you need?
When contacting HMRC, you must be prepared. Speaking to our team will give you the best possible chance of negotiating a repayment agreement. You should make sure you have all the important information about your company to hand. That includes:
- Your tax reference
- Your name and address
- The registered name and address of your business
- Details about why you’re struggling to pay your tax bill
- What you’ve done to raise the money
- How much you can pay now
- How long you need to repay the rest
- Information about the company’s assets, cashflow and expenditure
How to make an HMRC ‘Time to Pay’ arrangement?
If you are unable to pay a VAT, PAYE or Corporation Tax debt immediately, then as long as HMRC finds no sign of wrongdoing, it is likely to be open to negotiation. If you haven’t already had such an agreement in the past, HMRC may be willing to make a ‘Time to Pay’ arrangement with you. That is a structured payment plan to repay the money you owe in monthly instalments. HMRC sets no statutory maximum term, but usually expects a plan for business taxes to last less than 12 months, and agrees a longer plan only in exceptional cases. During that time, you will also be expected to pay all your ongoing tax liabilities on time, as they arise.
If you agree a Time to Pay arrangement with HMRC but fail to make an instalment payment on time or pay other taxes when they are due, the arrangement will go into default. That will severely dent HMRC’s confidence in your ability to keep up with future payments and you may not be able to reach another agreement to settle the debt. For that reason, you should seek professional advice and take the time to propose an initial payment plan that you’re confident you can afford.
Will HMRC be willing to agree a Time to Pay arrangement with you?
That depends on the circumstances of your particular case. HMRC’s criteria tends to be quite rigid and it will be more open to negotiating if you have not had a Time to Pay arrangement in the past. The level of confidence HMRC has in your ability to make the payments, your history of compliance, the sector you operate in and the promptness of your communication (i.e. did you make contact immediately or wait for enforcement action to begin) will also be considered.
HMRC is not in the business of closing down viable companies if it can help it. If it’s clear your business is simply going through a rough patch and has no instance of late or non-payments in the past, it’s likely HMRC will be open to negotiation.
The best time to contact HMRC to discuss making a Time to Pay arrangement is before the payment deadline and as soon as you realise you will have trouble paying your tax bill. This also has the benefit of avoiding late payment penalties, where they apply. Interest is charged on any late payment. Late payment penalties can apply to some taxes, such as VAT and PAYE, but Corporation Tax attracts interest rather than a late payment penalty.
What if a Time to Pay arrangement can’t be reached?
Before it will consider a Time to Pay arrangement, HMRC will want to be sure that your company cannot pay its tax bill in full and is not simply choosing not to do so. If it suspects that you can pay the tax bill but are choosing to withhold the money for other things, a debt management officer will be appointed to your case to look more closely at your company’s financial situation.
If HMRC decides not to offer you a Time to Pay arrangement or your circumstances change and you are unable to pay the instalments, it’s a sign that your company is insolvent. In that case, a formal insolvency process may be more appropriate. If you ignore HMRC, the realistic consequence is not personal liability. It is enforcement against the company and, before long, a winding-up petition. HMRC does have statutory powers that reach a person, but each has conditions that non-payment on its own does not meet: a personal liability notice needs unpaid National Insurance attributable to an officer’s fraud or neglect, and a joint and several liability notice needs avoidance, evasion, repeated insolvency or facilitation. Failing to agree a Time to Pay arrangement, or breaking one, is not a trigger for either. What HMRC will do instead is enforce: taking control of goods, or a statutory demand. If a demand for more than £750 stays unpaid for three weeks, HMRC can present a winding up petition. If the court then makes a winding-up order, your company goes into compulsory liquidation and is closed down.
Can a Company Voluntary Arrangement be negotiated with HMRC?
A Company Voluntary Arrangement (CVA) is an agreement to repay your company’s creditors a sum that the company can realistically afford over a period set in the proposal, usually no more than five years. A CVA only normally repays a proportion of the debt the company’s creditors are owed and can include measures such as rent reduction, lease surrender and staff redundancies.
The directors put forward the CVA proposal, and a licensed insolvency practitioner must act as nominee. The nominee reports on whether the proposal has a reasonable prospect of being approved and implemented. It is then put to the company’s creditors to vote on whether to accept it. It is approved if 75 percent or more (by value) of the creditors who vote are in favour, unless more than half (by value) of the unconnected creditors vote against it.
Once a CVA has been approved, it binds the unsecured creditors entitled to vote on it, including HMRC for its pre-CVA debts, so they cannot take separate action to recover those debts. It does not stop a secured creditor enforcing its security without that creditor’s consent. Without HMRC’s agreement, it cannot change the priority of HMRC’s preferential tax debts. It does not cover debts that arise after approval. Its terms normally also freeze interest and late payment charges on the debts it covers, so those debts stop growing. That can make it a very useful tool for the directors of companies with unaffordable tax debts.
Will HMRC accept a Company Voluntary Arrangement?
Some company directors mistakenly assume that HMRC will not accept a Company Voluntary Arrangement as it will lose some of the tax it is owed. However, that is not necessarily the case. HMRC will often vote in favour of a CVA because, in the vast majority of cases, a greater proportion of the tax debt will be paid than if the company entered liquidation. A CVA also allows a company to continue to trade, generating further tax revenues for HMRC.
HMRC has a specialist team, the Voluntary Arrangement Service, which decides whether to accept or reject these proposals. To stand any chance of your CVA being accepted, it must be properly structured, contain a well thought out plan to get the business back on track and the company should have a good record of tax compliance in the past.
Once the CVA has been drawn up, the department of HMRC that’s responsible for enforcing tax debts will not have a say in whether the proposal is accepted or rejected. The enforcement agents are only responsible for collecting 100 percent of the tax liability owed to HMRC. If that is no longer possible, as would be the case in a CVA, responsibility is passed to HMRC’s Voluntary Arrangement Service. That can greatly reduce the pressure on the company’s owners and directors.
If you do plan to propose a CVA to HMRC, we would always advise you to try and pay as much tax as you can before the CVA is voted on by your creditors. This will help to show that you are doing your utmost to pay as much of the debt as you can and that you are committed to paying the tax owed by your business in the future.
Could asset-based finance help your business pay HMRC debts?
These days, it’s possible for businesses that are in a less than perfect financial situation to raise a surprising amount of finance by using their assets as security. Assets such as stock, equipment, company vehicles, property and even unpaid invoices can all be used as security for funding.
For example, if a temporary cashflow shortfall is making it difficult to pay a tax bill on time, invoice finance, which allows you to free up the money trapped in unpaid invoices, could provide you with a short-term cash injection. Alternatively, if the business requires capital over the longer-term, asset-based loans could provide the funding you need to repay your creditors and get back on track.
Even if you already have asset-based lending or invoice finance in place, it may be possible to restructure your business’s secured lending to free up the funds you need to settle a tax debt.
What happens if you can’t reach an agreement to pay a tax debt with HMRC?
If you are unable to reach an agreement to pay a tax debt with HMRC, or simply ignore the debt altogether in the hope that it will go away, HMRC Debt Management will consider taking enforcement action against you. The good news is that the failure to pay tax on time very rarely leads to criminal prosecution or imprisonment. That’s reserved for cases that involve allegations of serious misconduct, fraud or tax evasion. However, HMRC Debt Management still has a number of enforcement measures it can take against you. That includes:
- Collecting the tax you owe through your earnings or pension
- Hiring a debt collection agency to collect the tax owing on its behalf
- Removing and selling goods and assets to be sold at public auction
- Taking money directly from a bank or building society account – the Direct Recovery of Debts (DRD) power applies only to debts of £1,000 or more that you know are due, and HMRC must normally leave at least £5,000 across your accounts. HMRC uses it rarely, and it does not apply in Scotland
- Commencing County Court proceedings against you
- Issuing a winding up petition to ultimately close your business down
HMRC will normally try to contact you before it takes enforcement action, other than where it suspects fraud or criminal activity, and it does not make empty threats. However, enforcement action costs HMRC money, so it will only be used as a last resort if HMRC believes there is no way of collecting the money by any other means.
Many company directors feel anxious about talking to HMRC and delay the conversation in the hope that their situation will improve. However, that usually makes matters worse. To stand the best chance of avoiding enforcement action, you should contact HMRC’s Debt Management Department once you know you’re going to be unable to make a payment, or at the very latest, as soon as that payment has been missed.
Need advice about an HMRC tax debt?
If you’d like to discuss a tax bill you’re struggling to pay or have questions about your best course of action when dealing with HMRC’s Debt Management Department, please do not hesitate to get in touch. We have vast experience of successfully negotiating Time to Pay arrangements with HMRC and drawing up CVAs that are approved in more than 80 percent of cases. We offer a free, confidential phone call to help you better understand your position and your options to resolve the debt.