What Happens if You Owe Money to HMRC?

What will HMRC do if my company owes them money is one of the more frequent questions our clients ask.

The answer is that HMRC has a lot of resources at their disposal when it comes going after organisations that owe them money and they can act or exert pressure before you know it.

They can and usually will act without hesitation if you are deliberately refusing to settle the debt you owe.

HMRC will not hesitate in taking action against your company once they suspect that your organisation is insolvent. As soon as you know you will miss a payment, the best thing to do is contact them as soon as possible.

That’s you being proactive, and being proactive shows that you are not withholding payment on purpose, but rather you don’t have the means to pay your debt at that particular time. You may be able to set up a Time To Pay Arrangement at this point.

Below we explain the measures, processes, and timelines usually applied by HMRC to receive payments, as well as possible consequences of the enforcement action.

What will HMRC do if my company owes them money for non-payment of tax?

1. A warning letter will be sent

Once you miss the initial payment, HMRC will send you warning letters. Expect the tone of the letters to be increasingly more threatening, which will eventually lead to a Final Opportunity Letter.

HMRC, however, may be willing to accept an arrangement for you to settle the debts you owe if you cannot pay the amount in question, but this option is available only to companies they see viable and have displayed good payment histories before with HMRC.

Sometimes, HMRC may use services offered by debt collection agencies to recover payment, but you will be informed in such scenarios.

2. An enforcement officer will visit

If you have received different warning letters and you still failed to make payments, expect a visit from an Enforcement Officer, also known as an HMRC Field Officer.

Field Officers from HMRC have the power to negotiate a debt settlement plan with your company for debts of up to £100,000. So you have the opportunity to avert more action from HMRC at this stage if you have relevant access to funds. If you don’t, the enforcement officer will issue you an Enforcement Notice.

3. They will give you an enforcement notice

When given an enforcement notice, you have seven days to repay your debt in full or negotiate a payment plan. If you don’t negotiate a time to pay arrangement or fail to settle your debts completely, you will face the seizure of non-essential business assets by HMRC enforcement officers or bailiffs.

HMRC differ from other creditors (besides landlords) that require a court order when issuing an enforcement notice; they don’t need a court order to do so. It’s good you know that the enforcement notice may be delivered via post, email, or fax and not in person.

If you fail to settle debts during this period, HMRC will take enforcement action against you using the Taking Control of Goods Regulations. There is usually some sort of misconception or misunderstanding over the officers who may have a role to play at this stage, so this is a breakdown of who to expect:

HMRC enforcement officers (field agents)

HMRC field agents have the authority to force entry into your premises provided there is no residential element. These enforcement officers from HMRC have authority from the Justice of the Peace.

Bailiffs

Bailiffs are not really HMRC officers, but they may belong to a bailiff organization employed by HMRC to collect settlements. Their power to enter your premises and seize properties are limited, although they may make you think otherwise. Bailiffs may also be referred to as HMRC bailiffs.

4. They will then list, seize and sell any business assets

The Taking Control of Good Regulations gives HMRC officers the power to enter your business premises, and list assets/goods for potential sale equivalent to the debt value, in addition to the cost of enforcement.

These properties will be listed on a Controlled Goods Agreement; you will be asked to sign this. The goods listed will still remain on your premises, but you cannot trade or sell them because they are under the control of HMRC.

If you fail to pay your debt or negotiate a repayment plan after seven days, these items will be seized and subsequently sold at an action to repay debts owed. Formerly, a repossession of this nature was called ‘distraint,’ and is usually carried out by bailiffs appointed by HMRC or HMRC enforcement officers.

If the funds they raise are insufficient to cover the arrears and associated costs, they still have the power to continue taking action against you.

5. They will then take court action

The next step in the enforcement measures is a court action. Depending on your debt size as well as the type of relationship you have with them – for instance, if it’s the first time you cannot make the necessary repayments – the following action may be taken against you:

Statutory demand

You might receive a statutory demand (a formal request for payment) from HMRC. HMRC may issue a winding-up petition against your company if you fail to make payment within 21 days or challenge the demand within 18 days.

County court judgment (CCJ)

If your company is taken to a county court, and you receive a CCJ, non-payments can be used as evidence that your company is bankrupt. You will be given 14 days to respond to this, after which you can then request for additional 14 days to arrange a repayment plan. Failure to respond or repay debt, HMRC may petition for the winding-up of your company if the debts you owe is above £750.

6. A security bond notice may then be issued

If a Notice of Requirement (NOR) for a Security Bond is sent to you, know that serious action has been taken against you by HMRC to recover PAYE or VAT arrears. The implication of this is that you have to provide security in the form of a bond to HMRC, and if you fail to make payment at the appropriate time, it becomes a criminal offense when you continue trading.

A Notice of Requirement is sent when HMRC believe your company has refused to make repayment on purpose, accumulated large debt amounts, or have refused to cooperate. You can pay a fine – as much as £5,000 – if you refuse to pay the security bond requested by HMRC.

Security bonds are usually requested by HMRC from directors who have had issues adhering to HMRC responsibilities in the past. If your repayments to HMRC eventually results to the winding-up of your company, have at the back of your mind that any new establishment you set up may not be able to trade until the bond is paid.

7. Finally, a winding-up petition may be requested

HMRC can petition the count to wind-up your company if you fail to pay a statutory demand or CCJ issued by HMRC. A winding-up order which forces your company into a compulsory liquidation will be granted if the petition is successful.

What can Forbes Burton do to help?

Visit our HMRC & Taxes service page here.

If you have received a warning letter from HMRC it is vital you get in touch as soon as possible.

The more time we have to help you with the debt the more options you have. We can give you advice on your best course of action to fix the problems. Call us on 0800 975 0380 or email [email protected]