Whether it’s VAT, corporation tax or PAYE, a debt to HMRC can be among the most serious faced by any business. Whilst all legitimate businesses aim to pay their taxes on time, cash flow problems or sudden change in financial circumstances can lead to HMRC arrears.
When arrears occur, HMRC can apply a variety of severe penalties for late payment and quickly take legal action if the situation fails to improve. However, there are ways you can deal with HMRC tax arrears to minimise penalties and protect your business as an ongoing concern. It is important to tackle the possibility of becoming insolvent before HMRC hits.
1 Act quickly if you’ve missed a payment
Companies that fail to pay their VAT can face significant financial penalties. However, a single missed payment won’t lead to a fine as long as the bill is cleared within 12 months. In contrast, a pattern of late payments will lead to escalating penalties, so it’s important to act quickly if a payment is missed.
2 Where possible, pay all arrears and associated penalties immediately
If an improvement in cash flow enables you to meet your VAT or PAYE arrears, you should do so instantly. The more payments you miss, the more severe the penalties, and HMRC will levy interest on late payments at well above base rate. Waiting to pay could end up costing your business thousands of pounds and potentially lead to legal action or even a winding-up petition.
3 Use your credit facilities to make payment
When your cash flow will not permit a payment, it’s advisable to make use of your available credit. In general, borrowing to pay debts is not sustainable, but HMRC has far more power than other creditors so it makes sense to pay your tax debts by any means possible. If you have maximised your available credit and are unable to take out an additional business loan, alternative financing can be answer, with invoice factoring and discounting enabling you to unlock the cash contained in your invoices.
4 Put additional capital into your business
If your business is viable and merely suffering temporary difficulties, you should consider funding tax payments from your own cash reserves or those of your investors. An injection of cash can solve other financial problems at the same time, but this may not be a viable option in many circumstances.
5 When you can’t pay, negotiate an arrangement
HMRC is notoriously aggressive when chasing late payments, but is more interested in securing underpaid taxes than forcing business into liquidation. For this reason, you may be able to negotiate a Time To Pay (TTP) arrangement if you are experiencing financial problems. In general, you can expect to be given between six and 12 months to repay your HMRC arrears, which can provide a real lifeline to your business.
6 Propose a Company Voluntary Arrangement
Chances are that if you can’t pay HMRC, you also can’t pay your other creditors. A Company Voluntary Arrangement will give your business breathing space and means that it cannot be wound up by HMRC or any other third party. However, this should be an option of last resort and you should aim to pay HMRC as a matter of urgency.
7 If all else fails, enter into administration
Entering into administration can allow your company to continue as a going concern after a period of restructuring and may protect you against legal action. Under administration, an external specialist will be appointed to manage the business in the best interest of the creditors, with the aim of keeping it afloat and returning control to you. This can be an expensive process, but it’s often the best outcome for viable businesses that are crippled by tax arrears and demands from other creditors.
8 Talk to Cashsolv
Cashsolv are the specialists in alternative finance and can help you meet tax debts in a number of ways. With asset-based finance, you can borrow against the value of your premises, plant or equipment, with no need for us to consider your cash flow, whilst emergency business loans can give you the funds you need to deal with an unexpected bill in under 24 hours. Alternatively, with invoice factoring or discounting, you can borrow up to 85% of the value of your outstanding invoices as soon as they’re raised, giving your cash flow a huge boost and helping you to meet your tax payments as they arise.
Learn more on how Cashsolv can make business finance work for you.