It has recently been reported that HM Revenue & Customs (“HMRC”) issued approximately 3,000 winding up petitions in 2014. Of the 3,000 petitions issued, 1,887 winding up orders were made resulting in these businesses closing down and being placed into compulsory liquidation. To highlight the dramatic escalation of winding up petitions being issued by HMRC, the total number of winding up orders made in the first quarter of 2015 has risen to 904.
HMRC appear to be increasing pressure on companies who fall into arrears with VAT, PAYE, NIC and Corporation Tax. Even though more pressure is being applied, HMRC is more interested in securing underpaid taxes than forcing businesses into liquidation. But there are options on how you can respond to a Winding Up Petition.
Solutions to businesses facing tax arrears
If your business is experiencing cash flow problems and is being chased by HMRC, there are solutions. it is possible to approach HMRC and ask for time to pay off the arrears. This is known as a Time to Pay Arrangement. It is important to tackle the possibility of becoming insolvent before HMRC hits.At Cashsolv, we have successfully negotiated a number of Time to Pay Arrangements.
If you are considering a Time to Pay Arrangement, HMRC will require the following information:
- An explanation as to why the company is not able to pay the arrears.
- A proposal detailing how the company proposes to pay off the arrears – this will include the amounts to be paid and dates when payments are to be made. It is usual for the arrears to be cleared over a period of up to 12 months.
- A cash flow forecast to demonstrate that the company can afford to clear the arrears.
Providing that HMRC is satisfied that the business is viable and it will be able to pay off the arrears over the proposed time period then it will formalise the agreement. HMRC will insist on all future taxes being paid on time and in full.
Some of the benefits of a Time to Pay Arrangement
- It allows your business to spread the cost of the tax arrears over a period of up to 12 months.
- By spreading the arrears over a period of time, this will assist with managing cash flow.
- You can include all taxes – VAT, PAYE, NIC and Corporation Tax
- It avoids a formal insolvency process.
Even if HMRC has begun recovery proceedings, such as distraint action or it has issued a winding up petition, it isn’t too late to agree a Time to Pay Arrangement.
In addition, if a company has previously entered into a Time to Pay Arrangement, HMRC will still consider another one.
HMRC has recognised over the last few years that businesses do have cash flow problems from time to time and sometimes a little bit of forbearance can help resolve the problem.
What happens if HMRC reject a Time to Pay Arrangement?
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