A lifeline from HMRC for small businesses facing tax bills?

As part of a further wave of support for UK industry, HMRC has said that businesses struggling with Covid debt will not be forced to pay overdue tax immediately.

Businesses of all shapes and sizes were able to remain operational during the worst of the Covid crisis thanks to a significant package of financial support from the government, including business loans, payment deferrals and grants.

The worry now is that those business owners taking advantage of schemes such as VAT and Corporation Tax deferral are facing some hefty bills due in the coming months that simply cannot be paid on time whilst they are still struggling to get back on their feet.

Recognising this challenge, Business Secretary Kwasi Kwarteng has confirmed that HMRC will be adopting a pragmatic approach to overdue liabilities. Reassuringly for many, enforced insolvency as a result of being unable to pay overdue tax liabilities will be an absolute last resort.

In an open letter written to the Institute of Directors and industry body R3, Mr Kwarteng has suggested that it is only those companies who avoid engaging with HMRC, rather than those with an inability to pay, who will be most at risk of enforcement measures. In simple terms, this means if you’re worried about paying tax liabilities, you should start a conversation with HMRC sooner rather than later. HMRC may agree to a ‘Time To Pay’ arrangement, which means some payments can be spread over a number of months, rather than having to be paid in a lump sum.
Should a company reach the stage of insolvency with unpaid VAT or other tax liabilities, HMRC are classed as a ‘preferential creditor’, meaning they will get paid first.

For many smaller businesses who are likely to need longer to trade their way back to a stable position, the prospect of HMRC repayments on the horizon is daunting. The suggested flexible approach from HMRC should offer a ray of light to viable businesses who just need more time to pay their tax liabilities.

It is clear that HMRC are looking to work with business owners rather than make unachievable demands that will lead to the failure of a business. For this to work, however, there is a responsibility on those businesses owing money to engage proactively to manage their debt.

If your business is suffering cashflow issues or you are worried about upcoming liabilities, it is crucial you seek professional advice as early as possible. You can contact our friendly team for advice on any tax matters, from corporation tax to inheritance tax – and everything in between. Call 01924 669 500 and ask us about our complimentary tax clinics.