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Why businesses struggle with VAT and Tax arrears and need to act now


“I haven’t paid over any PAYE for months”, “I’ve not completed my tax returns as I cannot afford to pay the tax and don’t want to highlight the issue” or “I have just received a letter from HMRC advising that they are going to wind up my company”. VAT and Tax ArrearsThese are comments we regularly hear. All companies know that they have to pay their PAYE and VAT as it falls due, so why do so many companies find themselves in this familiar situation struggling with VAT and Tax arrears?

When debts are starting to rise and suppliers are pushing for payment, HMRC always appear to be the easiest creditor not to pay. Whilst a supplier can refuse to supply on credit, HMRC is an involuntary creditor. It cannot refuse to provide credit until things have got so bad that the only remedy they have to stop more debt falling overdue is to stop the company from trading by winding it up. 

For a lot of companies, wages are one of the largest overheads the company has, which in turn means that the associated PAYE and National Insurance is a large expense. With the cost of labour continuing to increase, this tax bill will continue to rise causing even greater tax arrears in many cases. Once a company has missed a couple of payments, it can then be difficult to get back on track.

Tackle tax arrears early on

There are always options, but they can depend on the level of tax arrears and the steps that HMRC may already have taken to pursue payment. At an early stage it is simple to speak to HMRC, explain the issues and buy a bit of time to get matters back on track. It is always important to tackle the possibility of becoming insolvent before HMRC hits.

If it is not simply a case of needing a few extra days to pay tax arrears, it may be that a formal Time To Pay (TTP) is required. Communication is again key, to get the best deal possible it is best to take professional advice, to firstly ensure that the proposal put forward to HMRC is likely to be accepted and secondly that it is actually affordable.

What happens if tax arrears have started recovery action?

In some situations the tax arrears may have reached such a level that HMRC have started recovery action, which could range from distraint action through to a winding up petition being issued. 

As seven days notice must be given before a bailiff is sent to the premises, the company still has time to act before the bailiffs arrive. By acting quickly, it may be possible to halt the recovery action and stop the distraint going ahead. If it is not possible to agree a Time To Pay arrangement, the company could still be saved through a Company Voluntary Arrangement (CVA) or be rescued through administration. 

The earlier you act on tax arrears the more likely the business is to survive

So, if all these options are available, why is it important to act as soon as tax arrears start?  Time is always key, the earlier contact is made regarding tax arrears, the more likely it is that the business will survive. 

As with any creditor, the larger the debts and the longer the issue has been ongoing, the less receptive the creditor will be to helping the directors of the company. At an early stage HMRC are more likely to accept a Time To Pay Arrangement, which is likely to be the easiest and most cost efficient way to deal with the debt. If it is too late for a TTP, and even if a winding up petition has been issued all is not lost, even the day before a petition is due to be heard at court, a solution can be found, you just need to get the right advice from the right people.

Whatever stage you find yourself at, we can help, whether it is reaching an informal agreement, a Time To Pay Arrangement or putting in place a formal arrangement. Contact us now for further details.

Nicola Layland By Google+ |
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