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If you are facing pressure from HMRC regarding your company’s tax liabilities, it is reassuring to know that options are available to steer you through this stressful time. You may have become delinquent on payments due to a downturn in the market, the loss of a key customer, or an inability to collect your own debts on time.
HMRC hold considerable powers when it comes to recovering their debts and from your point of view, it is no help that their systems are able to quickly spot late payers. We see many cases where the company has set aside money for their tax bill, but needs to draw on it to meet a more pressing debt.
If the tax money is not replenished because of other cash flow issues – perhaps a drop in sales in the meantime – this is when problems can spiral out of control. However, there are several positive steps you can take to manage the situation whether HMRC is chasing for Corporation Tax, PAYE or VAT arrears.
How to deal with pressure from HMRC
The main advice is to act quickly. If you fail to contact them about your situation the chances of a successful outcome are significantly reduced, but negotiations can be difficult if you do not understand how they operate.
Robert Leonard can contact HMRC on your behalf. We have an excellent history of successful negotiations.
Time to Pay arrangement
The introduction of HMRC’s Time to Pay arrangement indicates an understanding of the problems facing limited companies in this challenging economy, and a willingness to assist businesses facing genuine cash flow problems.
This formal agreement with HMRC allows you extra time to pay your tax bill, with certain caveats:
You must be completely honest with HMRC about your company’s financial position. If they suspect that you are insolvent, or they agree to an instalment plan only to discover later that you misled them during negotiations, any arrangement will be cancelled and the business could be liquidated.
They prefer to be contacted prior to a tax payment falling due, rather than deal with arrears. Although arrears can be included within a Time to Pay arrangement, contacting them as soon as you foresee a problem demonstrates a degree of financial control and transparency of operations.
Time to Pay arrangements are only offered to companies temporarily unable to pay their tax liabilities. If an instalment plan is agreed, and you spend money on something other than your tax bill, you will be penalised if this comes to light.
An extended payment period of up to a year is common with a Time to Pay arrangement, and although the overall debt is not reduced, this added time relieves some of the pressures on a company that is already struggling.
It should be noted that a failed Time to Pay arrangement can be disastrous for a debtor, often leading to HMRC attempting to close the limited company in order to recoup its debt. This is why you need to ensure that no payments are missed or late for the entire term of the arrangement.
Options for managing cash flow
Invoice factoring and discounting
Invoice factoring and invoice discounting provide access to the value of invoices yet to be paid. If your credit control processes are efficient and debtors have a good history of paying on time, both methods can quickly release working capital.
Invoice factoring enables your line of credit to increase in direct correlation to sales, with new invoices offering access to more cash.
Generally speaking, 80%–90% of the value of unpaid invoices can be accessed. Invoice factoring or invoice discounting may help to provide the injection of cash needed to pay HMRC, and relieve financial pressure in the long term.
Companies owning assets of considerable value may be able to obtain a short-term loan secured on one or more of them. Assets could include company vehicles, equipment, property or inventory.
It is a good way to release cash in an emergency, satisfying HMRC’s tax requirements and giving you breathing space to bring your company’s finances under control again.
Company Voluntary Arrangement (CVA)
This is a good option if you have several unsecured creditors pressuring you alongside HMRC. It is a formal agreement to pay part or all of the debt (for example: 30p to the pound) over a longer period of time, and can include tax arrears.
Several payments are condensed into a single monthly repayment, which has the effect of freeing up cash immediately. It can be the catalyst for positive change in companies struggling under the pressure of debt.
You would need to appoint an Insolvency Practitioner to analyse your company finances and present the case for a CVA. Robert Leonard has a long history of successful negotiations, and offers a free, same day meeting for companies in distress.
Company administrationIf none of the above options are possible, the best course of action may be to enter Company Administration with a view to turning the business around. If HMRC are about to issue a petition to wind up your business, or you simply see no way out of your current situation and are worried about personal liability, this route into formal insolvency could potentially avert the threat of legal action from HMRC.
Robert Leonard can help you negotiate to bring about positive change in your business. Contact us using out contact form for a free initial consultation.
A creditor petition for bankruptcy is an application made to the court by a creditor, typically after several unsuccessful attempts have been made to recover their debt. If a bankruptcy order is subsequently made, the debtor’s assets are then sold with a view to repaying the creditor.
It’s a process strictly governed by regulation, and one that requires creditors to complete certain steps before the court will consider their application. It’s also a costly process for the creditor – currently £990 for the petition deposit, plus court fees of £280.
So what criteria must be met by a creditor prior to petitioning for an individual’s bankruptcy, and what process must they follow?
Criteria for making a bankruptcy petition
To make a bankruptcy petition, the debt must be £5,000 or more and owed either to one creditor or a group of creditors. They must be able to prove they’ve attempted to collect the debt, and this is typically done in one of the following ways:
Serving a 21-day statutory demand on the debtor, which remains unpaid and not secured - with a charging order or guarantee, for example - and where the debtor has not applied for the statutory demand to be set aside.
Taking enforcement action, such as using bailiffs to seize assets for sale, or other enforcement measures What is a statutory demand?
A statutory demand is an important part of the process when a creditor wants to petition for bankruptcy. It’s a formal demand for payment of a debt that is typically served on a debtor in person.
The debtor has 21 days from receiving the demand to pay the debt in full, or come to an arrangement to pay in instalments. If this doesn’t happen the creditor has four months in which to make a petition for bankruptcy.
The creditor petition for bankruptcy – what is involved?
Petitioning for the bankruptcy of an individual requires the creditor to take certain steps, including signing a declaration to confirm they’ve searched for other bankruptcy petitions against the debtor during the previous 18 months.
If a petition has been made, the creditor can choose to support it rather than carrying on with their own petition, which given the high fees associated with making someone bankrupt, can be beneficial on cost grounds alone.
In addition to signing the declaration the creditor must sign a ‘statement of truth’ regarding the details in the petition, and provide evidence that the money is actually owed.
Submitting the bankruptcy petition
Under some circumstances the petition should be submitted online, and will be dealt with by the High Court - if the debt amounts to £50,000 and the debtor lives in London, or they have no fixed address.
Otherwise, it should be handed to the county court located most closely to the debtor, with a copy also being served on them personally. A hearing will then be arranged for not less than 14 days later.
The bankruptcy hearing
The court has a number of options when all the evidence has been presented and the bankruptcy hearing concludes:
Cease or delay proceedings (known as a ‘stay of execution’) – sometimes this option is used so the debtor can organise their finances with a view to paying the debt, or to allow more time for evidence to be presented
Dismiss the petition if they believe the creditor is being unreasonable in refusing offers to pay in instalments, or it’s found that the debt has already been paid off Make a bankruptcy order
When a bankruptcy order is made
The Official Receiver (OR) takes control of an individual’s assets when a bankruptcy order is made, and also decides whether or not the debtor has sufficient residual income to make monthly payments to creditors via an Income Payments Agreement (IPA).
Their assets are sold to repay creditors, but repayment takes place in a strict order of priority set out in the Insolvency Act, 1986. Unfortunately, unsecured creditors rarely receive a high return from a bankruptcy process as they are placed at the end of the payment ‘hierarchy.’ Creditors make their claim for repayment using a ‘proof of debt’ form.
Bankruptcy generally lasts for a period of 12 months in England, Wales, and Northern Ireland, after which time the debtor may be discharged if they’ve cooperated fully in the process. Scotland operates a different system regarding individual bankruptcy.
If you would like more information about creditor petitions for bankruptcy, Robert Leonard can help. We are bankruptcy experts and will offer a more detailed insight into how the process works. Contact us with the below contact form, and we'll be happy to provide a free initial consultation.'
A company is deemed to be insolvent when it cannot pay its debts as they fall due, or the value of its liabilities is greater than its assets. If you think that your company is insolvent, you must cease trading immediately and seek the advice of a licensed Insolvency Practitioner.
Taking too long to cease trading leaves directors open to accusations of wrongful trading, and subsequent disqualification as directors. Robert Leonard offers a same day initial consultation free of charge, and is available for appointment as Insolvency Practitioner.
Common insolvency options for companies
Company Voluntary Arrangement (CVA)
A CVA can allow the directors of a company to retain control of operations while continuing to trade. Extended payment terms will be negotiated with creditors on their behalf by a licensed Insolvency Practitioner.
A single consolidated payment is made over a longer period of time, freeing up valuable working capital for the company. Interest and charges are frozen, and creditors are unable to take legal action while the terms of the CVA are being met.
These new circumstances may offer the opportunity to get the company back on its feet, and suppliers could continue to trade with you, albeit on a cash-on-delivery basis or using pro forma invoices.
HMRC Time to Pay arrangement
If you have arrears on VAT, corporation tax or PAYE, you or your Insolvency Practitioner may be able to agree a Time to Pay arrangement with HMRC. This is an instalment plan that grants you extra time to pay, and commonly lasts for three to six months.
Although many directors enter into negotiations with HMRC, it may be beneficial to use the influence of a licensed IP to help you in this regard. Robert Leonard can contact HMRC on your behalf to negotiate an extended payment period.
Under a TTP, your liability is not reduced – you pay the full amount over a longer period of time, but this often helps to relieve some of the financial pressure your company is experiencing.
Pre pack administration involves selling the underlying business assets as a going concern, and differs from Company Administration as the sale is negotiated prior to appointment of an IP.
This benefits several parties – the company’s financial problems are unlikely to become known to the public, meaning that trade should not suffer, jobs are often saved, and creditors generally receive a higher dividend than with liquidation.
Indeed, it is incumbent on the IP to prove that a pre-pack administration is the best possible option, and is in the best interests of creditors.
Creditors’ Voluntary Liquidation (CVL)
The CVL process may be suitable if there is no future for the company and you want to avoid potential accusations of wrongful trading or misconduct. The company is placed voluntarily into liquidation, and on appointment of a licensed Insolvency Practitioner, business assets are sold to realise as much as possible for the creditors prior to closing down.
Robert Leonard can offer advice on whether your company is insolvent, and professional guidance on any of the insolvency options mentioned.
The company has developed a strong reputation for knowledgeable and uncompromising advice – assisting directors across a wide variety of sectors, financial institutions and professional advisers.
We seek imaginative solutions for the benefit of all stakeholders. These solutions could include formal insolvency proceedings, however we will always do what is right and maintain a commitment to a duty of care for all involved.
If your business has financial challenges requiring professional insight and solutions; if you’re a creditor or professionally involved with those facing financial difficulties – Robert Leonard can help. We provide advice designed to help people and companies deal successfully with debt and financial problems – and wherever possible, we will find the best solution that allows for active steps towards financial recovery.
Whatever the size of the assignment, whether the business in difficulties is recently formed or well established, Robert Leonard offer the same high levels of service and dedication. We work closely with all parties to secure the best outcome.
Robert Leonard are an experienced Business Rescue service, with one of the highest success rates in the industry. We understand that often time is all you need, but that time is denied by your creditors. We specialise in negotiating with creditors, be it HMRC, the bank, or credit card companies, to give you as much time as possible to procure the funding you need to save your business. Our clients include organisations of all sizes, and we will use all of our expertise to help them arrive at the best finantial outcome.
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