Under pressure from HMRC
If HMRC suspect that an individual or company is insolvent, they will more than likely start taking some form of recovery or enforcement action. Whilst it may seem daunting, HMRC should be contacted as soon as you know that you will be unable to make any payment by the specified due date.
Possible HMRC action
• Letters – Correspondence from HMRC is likely to increase and letters will become increasingly threatening. If you cannot pay the amount due, they may willing to consider a ‘Time to Pay’ arrangement. To maximise the chance of being granted such an arrangement it is recommended that you instruct your professional advisor to negotiate on your behalf. If HMRC consider a ‘Time to Pay’ arrangement is not an option they may instruct various debt collection agencies to pursue the debt on their behalf, incurring significant charges, fees and penalties.
• Visit from HMRC Enforcement Officer – Whilst this may seem as a negative course of action, Enforcement Officers have the powers to agree a repayment plan, usually if the outstanding amount is below £100,000.00. This could be an opportunity, provided funds are available to halt any further action. Should a repayment plan not be a viable option, the Enforcement Office may serve and Enforcement Notice on the company.
• Enforcement Notice – An Enforcement Notice gives the company or individual 7 days to settle the debt in full together with any interest and charges, or negotiate a ‘Time to Pay’ arrangement. After the expiration of the 7 day period, if payment has not been made or an agreement reached Enforcement Officers, or bailiffs will be instructed to seize non-essential assets.
Unlike other Creditors, HMRC do not need to apply for a court order to issue an Enforcement Notice.
If the debt remains unpaid, HMRC will take enforcement action using the Taking Control of Goods Regulations. There is sometimes an element of confusion over which officers may become involved at this stage.
• Bailiffs – Bailiffs may sometimes be referred to as HMRC Bailiffs, although they are not HMRC officers, they are employed by an independent firm who have been appointed to act on behalf of HMRC in respect of the collection of debts. Their powers of entry and seizure are limited although they may sometimes lead you to believe otherwise.
• HMRC Enforcement Officers – HMRC Enforcement Officers, also sometimes known as Field Agents have the right to force entry into your business premises as long as there is no residential element. They must have authority from a Justice of the Peace to do so.
Inventory, Seizure and Sale – The Taking Control of Goods Regulations, allows HMRC Officers to enter your business premises and list goods for potential sale to the value of the debt plus costs of enforcement action. The items will be seized 7 days later if the debt hasn’t been settled or an agreement made. The items will be listed in a Controlled Goods Agreement, which you will be asked to sign, the goods will then be taken away and sold at auction. This action was formerly known as ‘distraint’ and can be conducted by HMRC Enforcement Officers or appointed Bailiffs. If after sale there is still a deficiency, then HMRC will continue to take action against the company or individual.
Court Action – Court action would be the next step that HMRC may take. Depending on the level of debt, previous HMRC payment history and the nature of the debt could determine what course of action they decided upon.
The options available are:
County Court Judgement(CCJ) – If a CCJ is issued, non-payment of the CCJ may be used as evidence that the business is insolvent. A response i.e. payment, or a defence to the action must be made within 14 days. A further 14 days may be issued by the court as an extension to give time to pay. Should payment not be made after this period HMRC may issue a bankruptcy or winding-up petition.
Statutory Demand – A Statutory Demand may be issued against a company. This is a formal demand for payment. A response should be made within 18 days. If the debt is for £750.00 or more and remains outstanding after the 28 day deadline then HMRC may decide to issue a winding-up petition against the company.
Winding-Up Petition – The final course of action after all of the above options have been considered and necessary action carried out for HMRC to issue a bankruptcy petition or winding-up petition against a company. A Winding-Up Petition can be issued for any debt in excess of £750.00 and a Bankruptcy Petition for debts in excess of £5,000.00.
Any and all of the above actions may suggest an underlying liquidity/solvency issue. It is recommended that advice is sought at the earliest opportunity as this will provide access to more of the available remedies. A Time to Pay arrangement should always be considered before considering any formal insolvency but should this not be available, alternative options such as Voluntary Arrangements may be available that allow you to keep some element of control.
Should you require any confidential advice regarding any insolvency matter you are more than welcome to contact us at firstname.lastname@example.org or by calling one of our offices. Initial advice is provided free of charge and without obligation.
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