HMRC Debt Collection & Management: An Expert Guide
In this guide we explore HMRC debt management and collection, including the options if your business is struggling to make a repayment.
If that’s the case, your company isn’t alone. The National Audit Office reports the total tax debt reached £42bn in September 2021, up from £16bn in January 2020 before COVID-19.
While the pandemic has now subsided, many businesses continue to struggle with debt. The government offered a bounce back loan during COVID-19, but several years later, lots of companies are struggling to repay it.
There are many different factors that can cause debt, but regardless of the reasons, there are also plenty of steps you can take to improve the situation. Before considering the different HMRC debt management options, let’s first look at how debt collection works.
How HMRC collects debt
Once a tax bill payment is overdue, you should receive a reminder letter from HMRC. If no remedial action happens, a final opportunity or notice of enforcement letter will follow.
Should the debt remain unresolved, there will be an in-person visit from an HMRC debt management officer or authorised third-party debt collection agency.
If the latter, contact HMRC to check that the agency is acting on the government’s behalf for your case – according to the government there are currently eight authorised agencies.
The collector will seek the debt repayment via company funds, and if that’s not possible, they may seize assets.
Other enforcement action the HMRC debt management department may take includes issuing a winding up petition, which could lead to a compulsory liquidation.
A statute barred status is not applicable to tax collection – HMRC has the power to pursue tax debts indefinitely.
The phone number for an authorised tax agent for contacting HMRC to discuss a client’s debts is 0300 200 3887 – this is the Agent Dedicated Line.
Here are the government’s Business Payment Support Service official statistics.
HMRC debt management
If HMRC is looking to collect a debt amount that your business will struggle to repay, seek expert help from a Chartered Insolvency Practitioner as soon as possible.
Depending on your situation, there are some different options that can grant extra time to pay the debt, or otherwise limit the fallout.
These include:
- Time to Pay arrangements: A debt collector may present this as an option at the time of an in-person visit. Alternatively, you can apply for this separately or via an insolvency practitioner. The Time to Pay arrangement initiative, beginning in 2008, provides a 6-12 month term for paying tax arrears in instalments – if granted.
- Company administration: Another way of getting some extra time to assess options is by appointing company administrators. They review the business’ position and see if there is sufficient support to continue the business. Administrators may recommend one of the following options:
- Company Voluntary Arrangement (CVA): During a CVA, a formal repayment plan is put in place while the business continues to trade. Once agreed, this eases the pressure from HMRC and can help the business avoid liquidation. Note though that Companies House and the business’ credit file will include a record of the CVA.
- Creditors’ Voluntary Liquidation (CVL): This is a structured arrangement for when HMRC debt management is no longer an option, because the repayments required are too high. Shareholders vote to approve the CVL process. After that, the business ceases trading and sells off its assets.
A members’ voluntary liquidation (MVL) is not an option for HMRC debt management as this is only for solvent companies that are planning to cease operations.
A business could oppose a winding up petition if its directors are certain they have a strong case – seek legal advice first in this scenario.
Failing to take any action at all in terms of HMRC debt management could result in a compulsory liquidation.
Summary: HMRC debt management and collection
If your company owes money to HMRC, you should receive a reminder letter followed by a final warning if you take no action.
After this, debt collection agencies will aim to recoup the money – this could include seizing company assets.
A simple option to help manage the debt includes applying for a TTP arrangement to help your business pay. HMRC debts that are too big to pay may require a CVL or CVA though.
So, what’s the difference between a CVL and CVA? While they have some similarities, the latter is much more likely to allow a business to continue trading.
If you have concerns about HMRC tax debt owed to HMRC, seek support from an experienced Insolvency Practitioner without delay.
We are ICAEW-licensed insolvency practitioners – please get in touch with us for any queries about HMRC debt management or collection.
