If you are a director of a business and are struggling to pay HMRC, there are things that you can do. HM Revenue and Customs (HMRC) recognise that some businesses can experience financial difficulties and they are willing to help as much as they can in finding a solution.
It is important to remember that HMRC treat tax debts as priority debts and will take action to recover them. This can include sending you letters, text messages and even visiting your home struggling to pay business rates or business. It can also mean taking legal action to recover the debt, which could result in you being declared bankrupt or having your business put into liquidation.
To avoid this, it is important to talk to HMRC as soon as you think that you will struggle with a tax bill, or are likely to miss paying one. They can work with you to help find a way of paying the debt and it is likely that they will offer you a Time to Pay agreement. This is an arrangement that allows you to spread the payment of your tax bill over a longer period, and can be made through your PAYE code or by direct debit.
You will be asked to provide information about your financial circumstances, including how much you are earning and spending. They will usually expect you to suggest how much you can afford to pay and over what period this can be paid off. This will be based on your current finances, but if your situation changes then you will need to contact them and update them.
They will normally allow a maximum of three years for you to pay your debt, though they may agree to a shorter term in exceptional circumstances. It is essential that you make sure that any repayment plan you agree to can be maintained, as missing payments will lead to further enforcement action.
HMRC will normally charge interest on outstanding debts, though this will depend on the type of tax that you owe. For example, VAT, PAYE and NICs are all charged at the rate of 2.75 percent per year. If you have been issued with a statutory demand for payment of the tax debt, this will need to be paid within 21 days, otherwise you could face having your business closed down by a winding up petition.
If you do not contact HMRC and do not agree a payment plan with them, they can send you a letter to tell you that they are taking ‘enforcement action’. This means they will take steps to recover the debt, which could include obtaining a warrant for your arrest or forcing your business to go into administration.
Fortunately, this does not happen very often, but it is important to be aware of the risks and to act as early as possible to avoid this happening. It is a good idea to keep records of any calls or correspondence that you have with HMRC, as well as any notes that you write down, so that you can prove that you did make contact and that you were trying to resolve the issue.