When it comes to paying your company’s tax bill to HMRC, we hate to break it to you, but it’s the one bill that absolutely must be paid. If a company is late paying VAT, PAYE, or Corporation Tax, this is a crucial indicator to the tax man that a business is in trouble, and they will come knocking. It is also likely that your business is insolvent, and you need to seek professional advice from an insolvency practitioner as soon as possible. Fortis is here to provide knowledge and get you through difficult times when owning a business. If you fear your business may be operating insolvent – get in touch with us today.
If I haven’t paid HMRC – what will they do?
To HMRC, not paying your tax bill isn’t an option. As a business owner, you are expected to put proper procedures in place to ensure that VAT, PAYE, and Corporation Tax are cleared before their deadlines. In December 2020, HMRC became top of the list of preferential creditors, meaning they even beat banks in terms of monies owed from your business. Unfortunately, this means there is absolutely no hiding from your tax bill, and there are definitely no excuses – HMRC has Real Time Information (RTI) systems in place to ensure they know exactly what you owe and exactly when you owe it.
Trying to avoid payments or ask for extensions can alert HMRC that your business operations are failing and that the management is in crisis; they are also aware that they are likely the number one creditor applying payment pressure to your business. And no, they won’t let up either. Every active company owes taxes, and businesses that do not pay accordingly are seen as taking from the taxpayers’ pot, which is morally and ethically blurred regardless of why you can’t pay.
What are the penalties for falling behind on my business’s VAT payments?
If you are late paying or miss your VAT payment, this will result in what’s known as a default. Falling into default means you will begin to incur different penalties and surcharges. Surcharges increase the more times you end up in default. If your business has higher revenue, you will be subject to a higher percentage surcharge as you are expected to have better financial management in line with your reported revenue.
What about other business tax arrears with HMRC?
HMRC does not have to obtain a County Court Judgement to chase missing payments; you will be alerted by mail with a payment notice and their outlined terms, and unfortunately, there is no dispute process – you must pay. This warning letter will alert you of how much is owed to HMRC, and when they expect you to have paid the debt by, this is usually within one week of the notice being issued.
What are my options?
One critical point to note is that if you continue to operate your business when you know it is insolvent, you can be held personally liable for your HMRC debts.
Assuming this isn’t the case, let’s look at the options you have for handling your business’s HMRC debts:
· Company Voluntary Arrangements – By entering a Company Voluntary Arrangement (CVA), you can protect your business from any legal proceedings on behalf of HMRC. Within this arrangement, you will be allowed time to develop an effective plan in which you can pay back some or all debts owed.
· Company Administration – This is where an external person takes over and temporarily runs your company, dissolving you of any legal responsibilities from HMRC until the company reaches a solution.
· Raising Additional Funds – Via routes such as invoice factoring, financing, or other financial funding means, you may be able to use these funds to cover your HMRC debts until your business operations resume.
· Time to Pay Plans – Offered on behalf of HMRC to viable and solvent businesses, Time to Pay plans allow business owners to pay back monies owed to HMRC on a limited scheduled plan.
· Company Closure – If there is no means to pay the debts owed, it may be time to liquidate and begin paying back creditors this way.
What should I do next?
Please speak with one of our expert Business Rescue advisors at Fortis to fully understand your options to ensure your HMRC tax bills get paid even in difficult times. Dealing with debt management when you are struggling with cash flow can be one of the most stressful circumstances a business owner has to deal with, but you don’t have to deal with it alone. There are always options, and as long as you are being transparent and honest with your business finances, we can ensure all issues are dealt with smoothly.
Speak with an expert advisor at Fortis Business Rescue today and sleep better tonight!