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HMRC the biggest business creditor. WHY?

HM Revenue and Customs (HMRC) are responsible for collecting all taxes from UK companies. Usually, this ensures that they are the biggest creditors for business in the UK. Businesses should make provisions for tax throughout the year. But if a company has cash flow problems, the HMRC plays second fiddle.

HMRC as a creditor

When the HMRC are a creditor, due to all UK companies having to pay tax, when a company fails, the HMRC is a creditor by default. They have no way to decide who they accept as customers based on creditworthiness as do suppliers and financial institutions. At present, they are not able to decline to deal with companies or directors who previously had payment issues. Under certain circumstances though they may request a security bond.

“This. incapability to choose who they deal with is one reason the HMRC are a creditor in most insolvent liquidations and usually the largest creditor.”

When a company experiences financial difficulty, often they prefer to pay suppliers over the HMRC. If they do not pay suppliers and services stopped, the company struggles to continue trading, so paying them in preference allows the company to trade.

It is easier to ignore payment to the HMRC than an essential supplier.

Nevertheless, if you’re overdue with the HMRC, it is crucial not to ignore the position. Penalties for late payment and interest is charged. Therefore, ensure you make dialect as soon as possible. The Issue is live so speak to them as soon as you know there is a problem.

HMRC arrears

Do not underrate the gravity of being indebted to the HMRC. Unlike a supplier, they have an arsenal of ways to collect payment. They are indeed resolute in obtaining tax owed. The HMRC can, and will, close your business if you fail to maintain the tax obligations of the company.

The arsenal available allows them to appoint a debt collection agency or enforcement officers to seize company assets. They can issue a winding-up petition against your company if £750 or more owed. So, do not ignore them.

HMRC – “unsecured creditor”

The HMRC are not given preference as a creditor as they are unsecured since they lost its “Preferential” status in 2003. Since then, they know they have little chance if any in a liquidation. So, they are especially aggressive employing debt recovery.

In the 2018 Budget, the return to “Preferential” type status would start in April 2020. This applies to PAYE, employee NICs and VAT. (Corporation tax arrears to be)

This change should improve the amount the HMRC recoups in companies falling into Insolvency. How this though affects other unsecured creditors is not known. Will it increase Insolvency appointments in small to medium companies?

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