HMRC: Standing in line for payment like everyone else

Michael Reid, managing partner at Aberdeen chartered accountancy firm Meston Reid & Co.

By Michael Reid, managing partner, Meston Reid & Co

THERE’s been a great deal of talk in recent months around the various options open to any business looking to deal with creditor pressure now that trading activity is resuming – always assuming that it can meantime source both product and staff.

I’ve taken the view that over-stretching the business/personal cash flow programme is unlikely to prove fruitful in securing survival, so care needs to be taken to manage cash resources in order to plot a return to overall solvency in the long term.

In June of this year, Kwasi Kwarteng MP wrote to the insolvency trade body R3 in his capacity as Secretary of State for Business, Energy and Industrial Strategy because R3 had asked him to provide comfort that HMRC would be supportive in its debt recovery measures for unpaid taxes.  His letter noted:

“You ask that HMRC takes a commercial view in order to drive rescue and publicise its strategy to encourage companies and insolvency practitioners to bring forward rescue procedures such as Company Voluntary Arrangements and restructuring plans.  I am very much in agreement with you that all stakeholders should support company rescue.”

It added:

“I am also aware that HMRC will take a cautious approach to enforcement of debt owed to Government that will have accrued during this period… HMRC enforcement during this critical period however, will be largely driven by a lack of engagement by companies with it, rather than just their inability to pay and that using insolvency to enforce payment will remain a last resort.  A flexible approach will be taken with those companies who engage with HMRC…”

This stance was supported by a government publication at the end of June entitled “Collecting tax debts as we emerge from Covid-19”. Thus, as with the approach to personal insolvency set out by the Scottish Government, the UK Government – corporate insolvency is a matter reserved for Westminster – is clear that if a company can pay its taxes, it should do so. Clearly, if a business is struggling, HMRC will seek to work with it in order to agree a plan based on commercial reality.

It is appreciated that, as an involuntary creditor, HMRC cannot simply stop supplying goods or services and hence must rely upon an honest and transparent negotiation process for debt recovery.

The Meston Reid & Co experience over the years has been that some taxpayers act as if the inability to stop supplying goods and services is a weakness that should be exploited, for example by simply ignoring requests for payment/discussion. Not a good idea, and it tends to mean that one has limited sympathy when the same company complains that HMRC is seeking to liquidate the company because of a lack of a realistic repayment proposal.

As many readers will be aware, HMRC organises visits and instigates regular communication in order to make sure that a taxpayer is aware of the liability.

Indeed, various support measures are in place in order to ensure fairness of outcome for the taxpayer. It is rarely in anyone’s best interest for a business to be liquidated by HMRC, thereby eliminating the prospect of both a recovery of the current tax debt and the receipt of further tax if it continues to trade.

No creditor can wait forever and, as many of the business effects of Covid-19 begin to subside, HMRC has announced that – from September 2021 – if a taxpayer either is unwilling to discuss a payment plan or ignores all attempts to communicate, enforcement powers exercised through court are likely to resume.

The Meston Reid & Co insolvency team deals with HMRC in virtually every liquidation – insolvent and solvent – and recognises that if bad news has to be conveyed to all creditors, including HMRC, it is best done sooner rather than later so that a sensible resolution can be pursued. 

It always makes sense to talk and establish a practical way forward. Occasionally, the process results in the directors of an insolvent company instigating formal insolvency proceedings by their own hand, but that is by no means an automatic outcome.

In short, there is no substitute for seeking advice from an experienced source, ideally before creditors begin to circle and start placing pressure on a company. That way, a mature view can be taken about a business plan, turnaround options and a payment programme for all stakeholder groups.

Michael Reid is a licensed insolvency practitioner and managing partner of Aberdeen chartered accountants Meston Reid & Co. The firm is recognised for its expertise in tax, audit, insolvency, corporate finance, business advisory, payroll, third-sector support and landed estates. The firm, which has its office on Carden Place, has a broad range of clients from start-ups and small companies to larger businesses with international operations.

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