It has been reported that British businesses accrued £42 million in outstanding taxes in 2015/16 which led to HM Revenue & Customs (“HMRC”) seizing assets from 1,592 companies. The number of seized assets from businesses rose from 649, an increase of 145%, from the previous year when unpaid taxes of £15 million were reported.
HMRC distraint is the process of legally taking possession of goods for sale at public auction, to make payment towards an unpaid tax bill. A bailiff is instructed to recover goods equal to the value of the debt owed to HMRC. In addition, the costs of removal and the sales process at auction will be added to the debt. When goods are sold at auction, they will often realise considerably less than their replacement value and as a result the bailiff will remove significantly more assets than at first appears necessary. Once the goods have been sold, if sufficient funds are not recovered to discharge the amount owed, you will still be required to pay the balance of the debt.
The increase in the number of distraint proceedings in the past year suggests that HMRC is using more aggressive methods to recover overdue taxes.
Is there an alternative to the bailiff taking possession of assets and selling them at an auction?
The answer is yes. If you receive an Enforcement Notice from HMRC, you must seek advice immediately. The most common solution to the problem is to negotiate a Time to Pay Arrangement with HMRC. This will involve explaining why the business is not able to pay the arrears at present, presenting a cash flow forecast to show that the business can repay the debt over a period of time and a proposal which should include how the business proposes to pay off the arrears – this will include the amounts to be paid and the dates when payments are to be made. It is usual for the arrears to be paid off over a period of up to 12 months.
If the proposal is accepted, HMRC will insist upon all future taxes being paid on time and in full. HMRC is more inclined to agree to a Time to Pay Arrangement, if the business has not had a previous poor compliance record.
What are the benefits of a Time to Pay Arrangement?
- You are able to include all taxes – VAT, PAYE, NIC and Corporation Tax arrears.
- It allows your business to spread the cost of the tax arrears over a period of up to 12 months.
- By spreading the arrears over a period of time, this will assist with managing cash flow.
- It avoids an insolvency process.
For more information on how a Time to Pay Arrangement can help your business read our guide.