Tax Arrears Solutions
Tax Arrears
What do I do if I owe money to HM Revenue & Customs?
A guide for company directors
Introduction
When a company experiences cash flow difficulties, tax obligations are often overlooked in favour of payments perceived as more pressing, such as wages, rent or suppliers.Although the intention may be to make good the outstanding payments at the first available opportunity, continued problematic trading conditions may make this difficult and leave the company reliant upon using crown monies to fund ongoing trading.
If you are a director of a limited company or plc
- You will probably owe money in respect of PAYE / NI deductions, VAT or corporation tax.
- Firstly schedule what you owe to HM Revenue & Customs and all your other creditors and to which period it relates (ie how long overdue it is).
- Produce a cash flow forecast showing how long it will take to repay the debt while discharging ongoing liabilities. Be realistic, this is no time for misplaced optimism which, if unfounded, could result in an action against you for wrongful trading.
- It is vital that any decision to continue trading does not worsen the position of any creditor, ie as a minimum all further accruing liabilities must be discharged and no creditors’ debt should increase without their specific agreement.
- If the arrears are more than one year old and / or it will take more than six months to discharge them, it is extremely improbable that HM Revenue & Customs will allow the company time to pay (based on their current attitude).
- For your own peace of mind, it is worth asking but do not be surprised if your request meets with a refusal. This will, of course, alert HM Revenue & Customs to your financial problems but as a responsible director this is no bad thing as you will wish to deal with them in an open and transparent manner.
- It is often extremely difficult to contact HM Revenue & Customs by telephone so do not hesitate to use email or fax; this has the advantage of simultaneously documenting your negotiations. Make a file note of all telephone conversations and, if they are important, confirm them in writing by letter, email or fax.
- Any professional or other person tasked with dealing with HM Revenue & Customs on your behalf will need your written authority to do so.
- If the company has a poor record of discharging crown debt, it is likely that any proposal, even if short term, will be rejected.
- If, despite this, you want the company or its business to survive you will probably need to enter into an insolvency process, either a Company Voluntary Arrangement or an Administration.
- If you do not expect the business to be able to trade profitably in the future then Liquidation may be the most appropriate course of action.
- In either case you need to take the appropriate professional advice – quickly.
Generally
- Mounting debts to the crown are often an indication of a wider malaise and if you are reading this because of financial difficulties it will certainly be an appropriate time to take stock and decide on either a plan to reduce costs, increase sales, obtain investment, a combination of two or more of the above or to cease trading.
- Professional advice is particularly important at such times - if nothing else this will highlight the options available. Any initial consultation with Geoffrey Martin & Co is free.
Geoffrey Martin & Co. LEEDS T. 0113 244 5141 LONDON T. 0207 495 1100 E. info@geoffreymartin.co.uk