At some point or other most businesses experience problems with their cash flow and face the possibility of becoming insolvent. One of the first signs of insolvency may be that your business finds they can't pay their tax bill on time. Unfortunately HMRC are not the most lenient of creditors and are under more and more pressure to deliver improved tax compliance. As a result HMRC are increasingly issuing winding up orders, closing businesses or seizing the assets of insolvent businesses.
We have put together some alarming statistics, issued by the Insolvency Service, on the true effect HMRC can have on an insolvent business. In 2014 there were 14,040 Company Liquidations across UK businesses. 10,302 of which were in the form of Creditor’s Voluntary Liquidations, but 3,738 were in the form of Winding Up Orders from HMRC. As a result 1,887 companies were closed by HMRC in 2014 and 1,080 SMEs had their assets seized by HMRC through a process known as distraint.
As a business it is important to stay on top of paying VAT, PAYE and even Corporation Tax payments. With the July 31st tax deadline, not only do you need to file your self-assessment tax returns as a small business but also make an up-front payment of 50% of your annual tax liability in one lump sum. With this in mind it is crucial to make sure that funding is in place if you think that this will not easily be covered by your working capital.
One early solution when you are struggling to pay tax bills is to seek help in setting up a time to pay agreement with HMRC. This will allow you to spread your tax arrears over a period of usually up to 12 months while you manage your finances through a stressful period. However, if you still experience problems with payments you may find yourself being issued with a Winding Up Petition from HMRC, which could be closely followed by a Winding Up Order and may even result in business closure.
Don’t fret though, there are still options available to your insolvent business if you are faced with a Winding Up Order.
Due to SMEs finding it harder to achieve funding through traditional lenders, Alternative Finance providers are a viable option to insolvent businesses with cash flow problems. Alternative Finance is largely asset-based and available to those with poor credit in many cases within 24 hours.
Company Voluntary Arrangement
If your business is insolvent and you are faced with a Winding Up Petition then you can act quickly with a Company Voluntary Arrangement (CVA). A CVA is a legally binding agreement whereby you can negotiate payments of a percentage of your debt whilst writing off the remainder. This allows your business to continue to trade as normal and for your creditor (in this case HMRC) to still receive some of the monies owed to them.
Request a Court Adjournment
By requesting a Court Adjournment your insolvent business can be given time to either explore a company administration procedure, to contest the debt or to request more time to pay HMRC. Should the adjournment be agreed all legal action will be paused until remedial action is in place.