Non-payment and ignoring letters from HMRC in the past often meant they would leave you alone but this is no longer the case. They now have real time information about the payment of PAYE as well as knowing from the returns how much VAT and corporation tax is due. This information is making it easier for HMRC to track late payments. Whether a failure to pay on time or file returns on time HMRC are geared up for dialling up the pressure.
Despite an inability to pay, HMRC is supportive of those who contact them early and is still approving Time to Pay arrangements, but ignore them and expect a reaction.
In addition to letters and phone calls HMRC are increasingly using enforcement officers to visit the business’ premises to collect payment or seize goods. Their schedule of fees is:
- Notice fee of £75;
- Visit fee to take control of goods £235 plus 7.5% of the tax owed that is over £1,500;
- Non-payment removal fee of £110 plus another 7.5% of the tax owed that is over £1,500;
- Interest may also be charged on the amount due.
- £60k £4,700
The visit normally results in significantly increased costs with officers may are demanding fees of up to £2,000 for the visit or 7% of the amount owed in relation to an enforcement notice.
Despite a phone call from the collection officer fixing a week’s notice before visiting, a new client had just received a visit in respect of VAT arrears of £60,000. The client wasn’t able to pay so the enforcement officer distrained (seized) assets but didn’t remove them saying they would return a week later. The following day the director paid the bill which now included an additional £4,700 in fees. Having paid they contacted K2 to say they couldn’t now pay other bills, fortunately we were able to help.
Had the company known more about the collection process, they could have saved themselves £4,700 in fees.
HMRC powers and its collection options
When a business has reached this point, it has invariably failed to respond to a number of approaches from HMRC, starting from ignoring initial letters warning that payment is due.
The process from there on most likely will result in either a visit by an enforcement officer or a Winding Up Petition. It may also result in a demand for a security bond. While security bonds are rare for trading companies they are becoming increasingly common with new companies that have been started up following the insolvency of a company run by the same directors.
Enforcement visits are carried out by field agents who have the right to issue enforcement notices (also called distraint warrants) to seize assets for sale at auction. They don’t have to actually remove the goods when they visit but the notice has the effect of transferring control from the company to the enforcement officer such that they cannot be removed without committing pound breach, a criminal act which has been covered by other blogs.
As an alternative or a final stage after goods have been removed, HMRC tends to apply to the courts for a Winding Up Petition.
Businesses should keep track of cash flow and their ability to pay PAYE, VAT and corporation tax liabilities on time. Persistent late payment of these indicate that a business is in financial difficulties but in most instances any late payment is a one-off. If not then a time to pay arrangement with HMRC won’t solve the underlying problem and in such instances advice from turnaround or insolvency professionals most likely will be necessary.
In the hope that the problem is simply a one-off, the message is clear: respond to HMRC communications sooner rather than later. The problem will not go away and can only get worse the longer it is left.
HMRC’s collection processes were further strengthened in November 2015, by the introduction of the power to recover debt directly from cash held in bank and building society accounts in addition to existing powers to seize and sell assets.
In addition, HMRC has been increasingly outsourcing collection to private debt collection companies to recover overdue income tax payments and to claw back overpaid tax credits.
In March 2017 CityAM reported that HMRC’s spending on the use of these agencies had increased by 92% to £24 million in 2016. Since private companies can also charge debtors this will only add to the overall bill for those targeted.