HMRC Debt Management: 8 Things to Check Before You Ring

The HMRC Debt Management Office is set up to facilitate the settling of tax debts via more manageable payment plans. For limited companies faced with daunting HMRC bills, this option can often be the only thing that prevents them from going under.

While it’s recommended to act promptly when confronted with a seemingly insurmountable VAT bill or similar, the biggest mistake that businesses can make is contacting HMRC unprepared. Directors and company owners should be aware that HMRC is not obliged to help any business out.

In fact, an HMRC payment plan isn’t offered up readily at all. They’ll need to make sure you satisfy a range of criteria before they even consider your case.

Because HMRC don’t agree to payment plans easily, it’s strongly recommended to have a business recovery expert speak to them on your behalf. HMRC will need to trust that you and your business can not only pay back the debt in full, but also ensure that you don’t find yourself in the same financial position next year.

We’ve arranged VAT payment plans and other HMRC payment plans for countless businesses over the years and can help any company with HMRC issues.

If you’re determined to try to arrange an HMRC payment plan yourself however, you’ll need to prepare beforehand.

Contact the HMRC Debt Management Office promptly

Business owners should start to take action as soon as they receive an HMRC debt payment demand letter. This is the time that you should either get in touch with a specialist to negotiate a payment plan for your company or give them a call yourself.

Those that delay at this stage may receive an HMRC enforcement notice soon afterwards. At this point, it may already be too late to negotiate any instalment options for your bill. Directors will normally be given 7 days to pay from receipt of this letter before legal action is taken.

What is the likelihood of your business securing an HMRC payment plan?

There are a few factors that can hurt your chances of negotiating an HMRC payment plan before you even pick up the phone.

If your business has already benefitted from an HMRC payment plan, it will find it much more difficult to secure another. HMRC will likely see this as a failure on the company’s behalf to resolve its financial difficulties and may consider it a bad risk.

Your company will also be judged on the historical risk of others in the same industry. If similar businesses have previously been unreliable in paying their HMRC debts, then yours can, unfortunately, be tarred with the same brush.

However unfair you may find the HMRC Debt Management Office’s methods of analysing your company’s risk, you need to stay calm when negotiating with them. Good communication between both parties is key to arranging a payment plan that works for everybody.

The alternative to securing payment help is often liquidation, so it pays to work with HMRC rather than against them. They don’t have to help your business at all. Remember you don’t hold any cards in this negotiation before you try to do any fierce haggling with them.

What have you tried already?

While it’s a good idea for either yourself or a representative to get in touch with HMRC promptly after receiving your first letter, they don’t necessarily like to be your first port of call for help. HMRC will want some evidence that you’ve already explored every option open to you to pay your bill in full before they consider an HMRC payment plan.

HMRC’s Debt Management Office doesn’t offer up payment plans easily. They’ll look into your asset base to determine if you could potentially raise the funds to settle the bill through selling any valuable items. This could be surplus equipment, vehicles, or even equity in property.

What’s going to change?

HMRC are unlikely to offer a VAT payment plan or similar help if they think your business will be in the same position next year. Directors will need to present a watertight case to HMRC Debt Management Office to convince them that the business’s fortunes will change within the next 12 months.

They’ll want to know why your business has found itself in its current position of struggling to pay HMRC debt. Before agreeing to any VAT payment plan or similar, they also need to be assured that your priorities are in order, and that you’re in control of your affairs. Businesses that seem proactive and organised are far more likely to be seen as a lesser risk by HMRC.

Expect to be asked how you plan to improve your company’s finances over the coming year and have a cash flow forecast ready at hand. HMRC have little interest in helping businesses that are unlikely to be viable in the long term.

Ensure you can afford the terms of your HMRC payment plan

It may seem like simple advice, but because HMRC help can be difficult to secure, you may be tempted to settle for a payment plan that you’ll struggle to stick to. Bear in mind, however, that any default in your payments will see HMRC lose confidence in your ability to pay, and perhaps pull out of the agreement altogether.

It’s a good idea to go through your finances thoroughly beforehand to gauge what you can afford to pay. Don’t forget to factor in interest too. The interest rate on HMRC payment plans is prone to fluctuate, so ensure that you’re working to the most current figures. At time of writing (October 2023), the repayment rate stands at 4.25%. Any payments will be taken out on the same day each month via direct debit.

Be careful not to create any other HMRC debt

As you might expect, HMRC will be less than impressed if they’ve worked to arrange a VAT payment plan with you, only to find you unable to pay your corporation tax instead. Don’t expect HMRC’s Debt Management Office to happily absorb that debt into your payment agreement either. You’re far more likely to see them cancel your current arrangement and demand both debts up front.

What happens if you can’t keep up with payments?

You’ll need to get in touch with HMRC as soon as possible if you think you’re going to default on your payments. Late payment penalty charges, and a higher rate of interest to pay will soon see tricky payments become entirely unmanageable.

Late payment penalties start from £100 as soon as a payment is one day overdue, but can potentially reach thousands of pounds for directors who repeatedly miss their payment dates. For a detailed rundown on how HMRC late payment fees are calculated, take a look at Can’t Pay Corporation Tax Bill? Here are Your Options.

If HMRC payment plan instalments can’t be paid, HMRC will expect the bill to be paid in full instead. As this is unlikely to be possible for most companies struggling to even make an instalment payment, this is likely to result in HMRC issuing a winding up petition against the business.

From there, businesses may have to liquidate, with any assets being sold off to pay any secured creditors it might have first, and then unsecured creditors such as HMRC.

For liquidations, the services of an insolvency practitioner (IP) will need to be enlisted, who will take control of the business to see through the whole process. There may be some other options available to your business, however. If your business has been hit with a winding up petition from HMRC, get in touch with one of our advisors as soon as possible in order to find out your options.

What happens if HMRC Debt Management Office reject my request for an HMRC payment plan?

All is not necessarily lost. Speak to one of our business rescue specialists to discover your best course of action. We may be able to find a way in which you can cover the HMRC debt straightaway, or negotiate on your behalf with HMRC Debt Management Office to secure a manageable payment plan.

What to do next

As soon as you receive an HMRC bill that your business will struggle to pay, you need to take action. As already explained, the consequences can be devastating for small businesses that are slow to react, so it’s a good idea to get as much help as you can get.

Forbes Burton offers free consultations that guide businesses through tricky situations such as this. Get in touch using our contact form or call us on 0800 975 0380. After talking through your company’s situation, you’ll be clear of the options available to you, and the best route for your business to take.