When SME owners know they are having cash flow problems and will not be able to pay VAT, PAYE, corporation or other tax bills the temptation is to ignore communications from HMRC.
This will only make the situation worse, especially because HMRC (HM Revenue and Customs) are becoming much more proactive with businesses whose payments are overdue, as we reported in September.
Even where a business knows it will be unable to pay, it is always better to let HMRC know, the earlier the better. HMRC is supportive of those who contact them early and a business may be able to negotiate a Time to Pay (TTP) arrangement which involves a payment plan for clearing the arrears.
One thing is certain, though, ignoring the situation will only escalate HMRC action and could, at worst, result in the business being closed down.
What action can you expect from HMRC if you don’t react?
There is a full list of the consequences of inaction on this Government website
In essence, HMRC has powers to collect the money you owe, either by taking possession of the business’ goods and selling them (called variously distraint, walking possession or seizure), or by using a debt collection agency, or by taking you to court to get judgment, or at worst by serving winding-up petition to close down your company.
If things get to this stage, it is also likely to compound your debt problem because there are fees that are charged for each process. It will cost you a fee of £75 for the issue of an enforcement notice, £235 or 7.5% of the main debt above £1,500 and £110, or 7.5% of any goods above £1,500 that are seized whether or not you subsequently pay or they are sold at auction.
If the business has not already asked for advice from a turnaround, restructuring or insolvency advisor it is imperative to do so now. The advisor will be very familiar with the processes the business is now facing and will investigate the state of the business thoroughly to establish whether all or part of it is viable, will advise on the next steps and help you through any ensuing negotiations. It is important to remember that a turnaround advisor is on your side.
You are likely to receive a letter from HMRC giving you notice their intention whether to enforce by distraint or issue a winding-up petition. This normally gives you just five days’ notice and the opportunity to communicate with HMRC before you receive a visit from an enforcement officer or the winding-up petition.
HMRC Enforcement officers have the power to seize and remove goods or take walking possession to control goods, rather like those of a High Court Sheriff with a writ. The enforcement officers have the right of peaceful entry and once on your premises may remove goods owned by the company. If there is no public access to your premises or if they are not invited in by you then they may apply to court for forced entry.
Any goods that are subject to a finance agreement, and therefore the business does not own them, cannot be removed but generally the company will have to produce finance or ownership paperwork to support claims that the goods are not owned and therefore cannot be removed.
One thing is certain, ignoring the situation is not an option