For many businesses the quarterly VAT, monthly PAYE or annual corporation tax payment dates are a time of cashflow stress and often profitable businesses can find themselves cash poor just when the taxman comes knocking.
If you find yourself in this situation the key thing to bear in mind is that you must act, and act early to avoid penalties and enforcement action.
The sensible advice of course is to ensure that your business has put by enough money for any tax payments as you go along, thus making sure that there are no issues. However life often has a way of not conforming to theory and if you find yourself in difficulty there are a number of steps you can take to avoid insolvency.
The first step is to get your accounts up to date and properly prepared. This will ensure that you have a clear sight of what your liability actually is. Putting all of your receipts in a box under the bed and forgetting about them is not an option.
Next you’ll need to contact HMRC’s Business Support Unit (you can find a link below). It’s best to call before your payment is due because it will show a willingness to confront the problem and deal with it in a business-like manner.
When you call you’ll need to be able to talk through the matter in hand. Think about how the issue arose, what things you’ve done to raise the money to pay the bill and be clear about how much you think you owe. The advisor will ask about the assets of the company and any cash on hand. You’ll also need some general administration items such as your tax reference, accounting date and business address.
You should also have a sensible payment plan in mind. Be realistic as the worst thing you can do is agree to a plan only to miss payments as this may end up with HMRC taking legal action or even seeking a winding up order. Think about your future cashflow and be realistic. If you don’t have a cash flow and profit and loss forecast at this point then get help from your accountant and complete this task.
HMRC will assess the information you give and if they feel that your business will be able to pay given enough time, will then propose a payment plan or “Time to Pay” arrangement. If you contact them in good time, before your payment becomes due then you shouldn’t have to pay penalties although you will pay interest on the unpaid balance.
Most people find that the Business Support Unit, whilst having the task of collecting unpaid taxes, is helpful and supportive. Despite any urban myths to the contrary HMRC much prefer to have healthy viable businesses paying taxes rather than shutting companies down immediately. Generally speaking HMRC will look at recovering the tax owed over a period of less than a year.
You may prefer to contact HMRC in writing and if you are not confident then getting a professional advisor in is a good idea. Using a business insolvency professional who is used to dealing with HMRC and in particular their Business Support Unit will ensure that things are done correctly and in a professional manner.
It is also important to understand that this will probably be a stressful time and you must try and remain calm and measured in your discussions with HMRC. Getting angry or abusive really won’t help your case at all.
Once you have an agreed payment plan then HMRC will usually suggest setting up a direct debit for the payments. Make sure that you do this and stick to the payment plan or they will take enforcement action.
If you think that you may have difficulty convincing HMRC that you will be able to pay back any taxes owed then it’s vital that you get early advice about other options such as a CVA or pre-pack arrangement. Speak with an insolvency practitioner as soon as you can so that you can protect yourself and your company.