Received a HMRC debt management letter? What are my options?

A pen on a HMRC debt letter

HMRC has several methods at its disposal to recoup any HMRC debt you fall behind on such things as income tax arrears. These generally begin with a HMRC debt letter, which threaten to take further action if you don’t pay to recover debts. If you get an HMRC letter, it’s vital to respond right away, even if you can’t pay, because it might be the beginning of a process that results in your business closing down. This article explains if can hmrc chase a dissolved company.

Basically, if you don’t pay your taxes on time, HMRC will come after you. They have a system in place that can easily track late payments or non-payments of tax.

When a company fails to pay its taxes, HMRC initiates a series of steps to recover the debt. Initially, HMRC will issue a ‘Notice to Pay’. This document outlines the owed amount and includes a strict deadline for payment. If the company fails to meet this deadline, the situation escalates. HMRC might involve private debt collection agencies to recover the money, or it could take legal action.

In severe cases, HMRC has the power to petition for the company’s liquidation, resulting in the closure of the business. It’s important to note that these are not empty threats. HMRC actively pursues unpaid taxes and has a reputation for its persistent and rigorous debt recovery process.

Ignoring HMRC’s attempts to collect the debt will only exacerbate the situation, potentially leading to more severe consequences for the company and, in some cases, its directors.

Once a case is identified, they will send out letters and penalties as well as take other enforcement measures to try and get the money back quickly.

What should you do if the HMRC sends you a letter saying that you owe them money and you can’t pay?

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HMRC Debt Management Letter – What Happens Next?

If you are struggling to pay a tax bill or have received a debt management letter, you must contact HMRC as soon as possible. Be transparent about your business finances and be ready to explain the difficulties your business is facing. They may request to know personal or financial information for things like income and expenditure figures or other things such as any unsecured debts you owe.

If you’ve already tried to negotiate a Time to Pay (TTP) payment plan arrangement with HMRC to extend the time limit on paying off your arrears, you’re not alone. HMRC may believe your company is insolvent if a Time To Pay has been denied or you’ve defaulted on an existing agreement.

HMRC bailiffs and debt collection agencies may seize the company’s property to the value of the debt, or, in the worst-case scenario, court action such as a winding up petition may be raised against the firm.

What to do when you can’t pay a HMRC debt management letter

Find a licensed Insolvency Practitioner (IP)

A licensed IP will confirm that the amount demanded by HMRC is accurate, assess your company’s financial situation, and then present your best options. If you have not applied for a Time to Pay arrangement yet, a licensed insolvency practitioner can make a realistic proposal to pay HMRC debt that ensures the company can maintain new repayment levels for the entire term.

Secure further funding

Invoice financing, merchant cash advances and asset-based finance are other sources of funding that can help you get the funds you need for your operation. A bank loan may be a good fit if your business has healthy revenue or loans from family or friends.

Company Voluntary Arrangement (CVA)

HMRC may be ready to accept a Company Voluntary Arrangement (CVA), which is an official debt consolidation option. You make one monthly payment to the plan, which is disbursed to creditors as scheduled. In some circumstances, a portion of the debt may be written off at the end of the arrangement, which on average lasts three to five years.

Company Administration

Once a company enters administration, all legal proceedings against the company are put on hold for eight weeks. This provides the insolvency practitioner time to assess the situation and come up with a plan for the company’s exit from the administration – which could involve liquidation or a Company Voluntary Arrangement.

Creditors’ Voluntary Liquidation (CVL)

There is no chance of rescue when you place your company into creditor’s voluntary liquidation, and it therefore will close down. A CVL allows directors of insolvent companies to fulfill their legal duties by minimizing losses for creditors. You may also be able to claim director redundancy payouts by taking this route.

At Company Doctor, we understand how difficult it can be to manage your finances. If you’ve received a debt management letter from HMRC and are struggling to make payments, our team can help. We’re committed to providing unbiased and independent advice that complies with UK insolvency laws.

Please see one of the team for a no-obligation, same-day consultation.

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The Consequences of Ignoring HMRC Debt

Disregarding your company’s debt to HMRC is not an advisable strategy. By doing so, you are potentially setting your company on a path towards severe financial and legal consequences. HMRC is relentless in their pursuit of what is owed, and the penalties for ignoring HMRC debt can be significant.

For instance, if you fail to pay your company’s tax bill, you may be charged interest on the outstanding amount from the date it was due until the date it is paid. Furthermore, HMRC can take enforcement action such as taking control of your company’s goods (a process known as ‘distraint’) and selling them to recover the debt. This can severely disrupt your business operations and can damage your company’s reputation.

In extreme cases, HMRC may issue a winding-up petition to close your company if it owes £750 or more. This can lead to compulsory liquidation, a scenario in which the company’s assets are sold to repay creditors. The company then ceases to exist, which can have far-reaching implications for directors, shareholders, and employees.

For directors, there can be serious personal implications as well, such as personal liability for company debts or disqualification from acting as a director. It’s therefore imperative to take HMRC debt seriously and seek professional advice to explore all available options and to choose the best way forward for your company.

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How to Negotiate with HMRC

Addressing HMRC debt head-on is the best course of action. If your company is struggling to pay its tax bill, it’s essential to inform HMRC as soon as possible. By communicating proactively with HMRC, you may be able to negotiate a payment plan, often referred to as a ‘Time To Pay’ (TTP) arrangement.

A Time To Pay arrangement is essentially an instalment plan which allows your company to pay its tax liabilities over an extended period. HMRC will consider a Time To Pay arrangement if it believes that your company is genuinely unable to pay its tax bill due to short-term cash flow difficulties. The arrangement typically lasts up to 12 months, although in exceptional circumstances it can be extended beyond this timeframe.

Negotiating a Time To Pay arrangement requires a solid understanding of your company’s financial position. It’s crucial to present a realistic and sustainable repayment plan to HMRC, and this often involves providing detailed cash flow forecasts and financial projections. HMRC needs to be convinced that your company can adhere to the repayment schedule while meeting its ongoing tax obligations.

Bear in mind that the negotiation process can be complex and time-consuming. It’s usually advisable to seek professional advice to maximise your chances of securing a favourable agreement with HMRC. An insolvency practitioner or a specialist in tax negotiation can guide you through the process and represent your company’s interests effectively.

Consequences of Ignoring HMRC

Ignoring HMRC debts is a perilous route that could lead to severe consequences for both the company and its directors. If your company fails to pay its tax liabilities, HMRC may take enforcement action to recover the debt. This may involve the issue of a ‘Distraint Notice’, which allows HMRC to seize and sell the company’s assets in order to satisfy the debt.

Moreover, if the debt continues to go unpaid, HMRC may issue a ‘Winding-Up Petition’. Upon receiving a Winding-Up Petition, your company’s bank accounts may be frozen, and its control is effectively handed over to an Official Receiver or an appointed insolvency practitioner.

On a personal level, directors could also face serious consequences. If they continue to trade while the company is insolvent and unable to pay its tax debts, they may be held personally liable for the company’s debts under ‘wrongful trading’ laws. In severe cases, directors could be disqualified from acting as a director for up to 15 years.

The key takeaway is that ignoring HMRC debts is not an option. It’s critical to seek professional advice and take appropriate action as soon as financial difficulties arise.

Need to speak to someone?

You are not alone if your firm is having problems with unmanageable debts, restricted cash flow, or an uncertain future. Every day, we speak to company directors just like you and are here to help you with tax debt advice.

Call our team today for free advice on 0800 169 1536

Further Reading

If you’re unsure about how to handle an HMRC debt, it’s vital to understand the role of a licensed Insolvency Practitioner (IP). An IP can provide you with expert advice and guide you through the process. Learn more about what an Insolvency Practitioner is and how to pick the right one for you here.

Applying for a Time to Pay (TTP) arrangement can be an effective solution when faced with an HMRC debt. Find out more about TTP and how to apply here.

As a company director, you have certain fiduciary duties, particularly in instances of financial difficulty. It’s important to understand these responsibilities to avoid any legal consequences. For more details on directors’ duties, click here.

If your company is struggling to repay its debts, it may be necessary to consider liquidation. To understand the implications and process of liquidation, you can refer to our guide on ‘Company Liquidation Explained’ here.

What happens if my company fails to pay taxes to HMRC?

If a company fails to pay its taxes, HMRC initiates a series of steps to recover the debt. Initially, HMRC will issue a ‘Notice to Pay’. If the company fails to meet this deadline, the situation escalates, and HMRC may involve private debt collection agencies or even take legal action, potentially leading to the company’s liquidation.

What should I do if I receive an HMRC debt management letter?

If you receive a debt management letter from HMRC, you must contact them as soon as possible and explain your business’s financial difficulties. If your attempts to negotiate a Time to Pay (TTP) arrangement have been unsuccessful, you may need to seek help from a licensed Insolvency Practitioner (IP).

How can I address my company’s HMRC debt if I can’t afford to pay?

You could explore several options, including securing further funding, proposing a Company Voluntary Arrangement (CVA), entering Company Administration, or even initiating Creditors’ Voluntary Liquidation (CVL). A licensed IP can help guide you through these options.

What are the consequences of ignoring an HMRC debt?

Ignoring HMRC debt can lead to severe financial and legal consequences, such as having your company’s goods taken and sold to recover the debt (a process known as ‘distraint’), being issued a winding-up petition leading to compulsory liquidation, and for directors, personal liability for company debts or disqualification from acting as a director.

How can I negotiate with HMRC regarding my debt?

If your company is struggling to pay its tax bill, it’s essential to inform HMRC as soon as possible. By communicating proactively with HMRC, you may be able to negotiate a payment plan, often referred to as a ‘Time To Pay’ (TTP) arrangement. It’s advisable to seek professional advice for this complex and time-consuming negotiation process.


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