HMRC clarifies stance on pandemic affected tax debts

HMRC has confirmed that where tax payers are struggling after the pandemic, it will take an ‘understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax’.

HMRC stressed that it wants to work with taxpayers to find a way for them to pay any tax debt as quickly as possible, and in way they can afford. This would include instalment schemes such as Time to Pay payment plans.

During a review of any tax position, HMRC will look at the overall financial position of the business, including the cost of repaying any Covid-19 related lending, such as bounce back loans or other financial support.

We would always encourage clients to contact HMRC in advance of the due date of any liability, as they are more likely to be receptive to an arrangement.

Where a business or tax payer doesn’t get in touch, HMRC has said it would ‘take a cautious approach in pursuing debt enforcement action. The presence of a government backed loan/finance would not prevent us from taking debt collection activity, even where that activity may result in pursuing a business towards insolvency. We only take this action as a last resort, and take great care to use our enforcement powers fairly and carefully’.

Given the level of support that has been provided through the pandemic, HMRC are going to be under pressure to collect amounts that are due. The Government cannot afford to allow pandemic affected tax debts to go unpaid indefinitely, but balancing that with understanding around individual circumstances is going to be tough!

Our suggestion is that businesses do all that they can to meet their tax liabilities, or to keep HMRC informed, as this pressure upon HMRC will only increase.

The reality is that, as their own statement suggests, we are likely to see HMRC pushing some businesses or individuals into bankruptcy or liquidation.

Additionally, the temporary measures introduced by the Corporate Insolvency and Governance Act 2020 (CIGA) which prevented the use of winding up petitions, ended in September 2021. Creditors will again be able to issue winding up petitions.

This may lead some companies to restructure their finances through an administration or company voluntary arrangement (CVA), where HMRC may be a creditor. In its public statement on voluntary arrangements, HMRC made it clear that it would support proposals that are fair to all creditors.

As mentioned above, we would strongly recommend that if you have tax liabilities, either personal or business related, that you cannot meet, speak to HMRC as soon as possible. We cannot make arrangements for you, but our experience over many years is that these liabilities don’t go away, and the stress that they can bring is enormous, and can cloud everything.

Whilst we can’t liaise with HMRC for you, we can help you construct a business plan that takes account of repayments, and cash flows that show their affordability. Do get in touch if we can help.