Kevin McLeod
Written By Kevin McLeod
Licensed Insolvency Practitioner
July 13th, 2023

The latest figures show that the UK tax gap, the difference between the amount of tax due and the amount collected, fell to 6.5% between 2014 and 2015. This is the lowest level ever recorded and reflects the progress made by the government’s Making Tax Digital initiative alongside its firm commitment to tackling tax evasion and avoidance.


Why Would You Receive a Warning Letter from HMRC?

There are some reasons why business owners fail to settle their tax bill promptly. They may find the timing and administration of their tax returns difficult or the business may be going through a bad patch and genuinely can’t afford to pay. When businesses fail to meet their tax obligations, they will receive varying types of threatening correspondence from the taxman, all of which will have one objective: to enforce compliance, recover the money owed and close the tax gap further.

Time to Pay (TTP) Arrangements

HMRC is an aggressive creditor that takes serious enforcement action against a company to recover money owed. That said, it will listen and offer the extra business time to pay or a schedule to pay in instalments if it thinks that the business is suffering temporary cash flow problems and can pay in the future. However, only businesses that have good compliance regarding abiding by industry regulations and government legislation will be considered.

To put an agreement in place, business owners should contact HMRC immediately. It’s typically easier to get an agreement in place before the deadline, rather than once it’s been missed. By contacting HMRC first, businesses are showing a responsible approach and, critically, that they’re not trying to avoid paying tax.

HMRC Threats of a County Court Summons

Failing to repay tax owed via a TTP arrangement can result in HMRC taking legal action against the business. A County Court Summons is issued when a creditor claims that a business owes it money. When this happens, the business must respond swiftly within 14 days by paying the full amount, paying only what it believes it owes or defending the claim. Businesses can request an extra 14 days to respond if the claim is being defended or it is paying only what it believes it owes.

In the case where the claim can’t be disproved, the tax debt will be confirmed and proven in court. If the company doesn’t respond to a County Court Summons within 14 days, it could end up with a County Court Judgment.

HMRC Threats of a County Court Judgment (CCJ)

The business will receive a CCJ through the post when the Court decides that the business has a debt to pay and hasn’t responded. The situation can be resolved by paying tax arrears in full or in instalments within a certain timeframe. The business must act within 30 days of the CCJ being given, to have the judgement removed or set aside. Once a CCJ is sent, it becomes legal proof that the business is insolvent and HMRC can now legally wind it up.

Notice Warning of Enforcement by Distraint

When tax arrears remain unpaid for a prolonged period, a notice warning of enforcement by distraint is sent to the business. This notice is used to “take distraint over goods for unpaid taxes” or in layman’s terms to seize assets and stock that can be sold and used to repay some or all of the tax debt. After receiving the notice, the business has five working days before an enforcement officer visits the business premises to take possession of business assets. There are clear rules on what can and can’t be seized, and it is highly unlikely that the taxman will remove assets that will prevent the business from trading.

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