When you hear the word ‘creditor’, what do you think of? While most people think of banks and investors when they hear someone talk about their creditors, but the UK’s largest creditor is actually HM Revenue and Customs.

From insolvent companies to struggling but solvent businesses, thousands of UK-based businesses owe money to HMRC, whether for VAT and PAYE contributions, Corporation Tax or other taxes.

If your company can afford to pay its taxes on time, working with HMRC is rarely a difficult process. However, if you fall behind and fail to pay VAT or any other tax as it comes due, your company could face pressure.

This can range from a reminder notice that your tax payment’s overdue to serious legal pressure, including the threat of your company being wound up by HMRC to recover the money it’s owed.

Are you concerned about your company’s ability to pay its taxes on time? Read on to learn more about the process of dealing with HMRC when your company can’t afford to pay tax on time and the options available to help your company.

When do you need to pay VAT?

Does your company need to pay VAT? Most companies, with a few exceptions, need to register to pay VAT. If your company earns more than £90,000 in turnover yearly and doesn’t sell VAT exempt items, you’re required by law to register.

Once registered and the business is actively collecting VAT on its sales, you’ll need to file a VAT return to HMRC every three months. There are some limited exceptions to this, such as entities who pay VAT via the annual accounting scheme.

As of 1 April 2019, VAT registered businesses became legally required to submit their returns through compatible software under the rules for Making Tax Digital for VAT.

If your company’s in a Company Voluntary Arrangement (CVA), it’s possible to submit a VAT return offline by contacting HMRC.

The easiest way to avoid issues is to ensure your company pays its VAT on time and in full as it’s due. If you don’t, the business could be charged interest by HMRC on the remaining balance.

When your company doesn’t pay its VAT on time, HMRC will record a default and enter you into a ‘surcharge period’. During this period, your company will face surcharges and fees based on the amount of outstanding VAT. You can view these penalties online at the HMRC. Penalties and surcharges can quickly add up, so it’s vital for any business to pay its VAT bill as soon as it can afford to.

What will HMRC do if your business doesn’t pay VAT?

HMRC, like any other business or organisation your company owes money to, is a creditor. When you don’t pay taxes and mount up arrears, HMRC will take legal action – often aggressive and serious – to recover what it’s owed.

Your company may also be insolvent because of its tax debts. When HMRC demands payment, it puts your company in the same financial position as it would when any other creditor demands payment – a position that could lead to liquidation.

If your company doesn’t pay, HMRC may file a winding up petition. This is a serious legal document that allows them to petition to put your business into compulsory liquidation and subsequently close down.

With HMRC putting pressure on your company and its finances strained, it can be a serious and stressful challenge to work out which step to take next. There are options available to help your company respond to HMRC and pay off its tax arrears.

How can you reach an agreement with HMRC?

While HMRC can be extremely aggressive in collecting its tax debts, it’s also fairly understanding of the problems businesses currently face. Companies that can trade on their own are after all, far more likely to be able to continue paying taxes.

If your company has financial issues that prevents it from being able to pay its taxes now, but could potentially pay over time, it might be able to use a ‘Time To Pay’ (TTP) arrangement – to work out a long-term payment plan with HMRC.

It’s a contract between HMRC and your company, so, with a TTP in place, you can pay tax arrears to HMRC in manageable instalments so cash flow and the ability to trade isn’t negatively affected.

Most of the time, this arrangement lasts for about six to 12 months, although longer arrangements can be made. HMRC will only allow companies which are viable – with a proven cash flow history and viable business – to use a TTP payment scheme.

Are Time To Pay arrangements only available for VAT?

Although VAT arrears are more common than other tax arrears, Time To Pay plans can also cover other debts such as Corporation Tax, it may be able to include these unpaid taxes in its Time To Pay arrangement with HMRC.

As with a TTP arrangement that only covers VAT, you’ll also need to show it’s financially capable of repaying its tax debts over the length of the suggested plan for it to be eligible for a VAT and Corporation Tax Time To Pay arrangement.

Does your company owe money to HMRC?

Being in debt to HMRC can be a daunting situation for any company director. From penalties and surcharges to the risk of your company being wound up, HMRC could use a number of aggressive options in order to collect payment.

Don’t be disheartened however, it may be possible to enter into a TTP arrangement and pay taxes over time, and it may also be possible to use third-party financing to raise the cash necessary to pay tax arrears right away.

Whether you have minor tax arrears which it can pay with ease or significant tax debts that may require it to enter into a TTP arrangement, there may be a useful, viable and effective solution just around the corner to help your company work with HMRC.

If you’re worried about being unable to pay your taxes on time or it’s a barrier to you realising the ambitions you have for your business, contact the team at TruSolv today. We can help you understand your options and give you the tools to make the decisions for your business, email us or give us a call on 0808 196 8676.