By Daniel Hunter
The number of petitions presented by HMRC to wind-up companies has soared 57% in one year as HMRC gets tough on businesses late to pay tax, says Wilkins Kennedy LLP, the Top-20 accountancy firm.
HMRC presented 5,302 petitions to wind up companies in 2011-12* compared to 3,367 petitions in 2010-11.
Once a company is put into ‘compulsory liquidation’ following a winding up order, a liquidator will be appointed to sell off a company’s assets to generate cash to pay creditors. HMRC uses winding-up orders as a way to reclaim debts from businesses that cannot pay their tax due.
Wilkins Kennedy explains that the sympathetic approach HMRC adopted towards struggling businesses during the recession has been replaced by a more hard-line stance.
“When businesses run into trouble, often one of the first things they do is try to delay tax payments to help manage their cashflow. This puts businesses on a collision course with HMRC," Anthony Cork, Partner at Wilkins Kennedy, said.
“HMRC does not like being used as a ‘lender of first resort’, and is keen to dispel the image that it is a soft touch or that the unauthorised late payment of taxes is an acceptable way for a business to resolve cash flow problems.
“The Government has placed a lot of extra pressure on HMRC to increase the revenues it collects. Ending the sympathetic approach to late payment is an easy option for HMRC but it will put many small businesses in very precarious financial positions.
“Businesses need to be very careful about getting on the wrong side of HMRC. These figures show HMRC has become increasingly unwilling to compromise in its pursuit of missing taxes.”
Wilkins Kennedy adds that the jump in winding up petitions coincides with HMRC’s continued tightening of access to the popular ‘Time to Pay’ scheme that was expanded to help businesses during the recession.
HMRC stopped publishing Time to Pay statistics in 2011, with final statistics showing an increase in applications to use Time to Pay and an increasing number of applications rejected by HMRC.
Wilkins Kennedy adds that HMRC’s poor management of debts has contributed to its aggressive approach to unpaid taxes.
“HMRC has traditionally been very poor at intervening early with businesses to help them manage their tax bills. HMRC often lets tax debts spiral out of control, which leaves it with little choice but to resort to winding-up petitions to recover large amounts of unpaid taxes,” Cook explains.
“Under HMRC’s new approach, the taxman is stepping in earlier with struggling companies, but not early enough so that it can work out problems over tax payments without shutting down the company.
“It would be better for HMRC and UK businesses if HMRC adopted a much more pre-emptive approach and engaged with businesses early on to help them find ways to manage their tax bill. HMRC used to take this approach under Time to Pay, but it has now made it much harder to access Time to Pay help. By the time HMRC does act now, it is often too late to reclaim debts without putting the debtor out of business.”
Wilkins Kennedy notes that electrical retail chain Comet went into administration owing an estimated £26m in unpaid VAT and payroll taxes to HMRC.
HMRC winding-up petitions have notably been the cause of several sporting administrations in recent years, from small clubs like Chester City to giants including Rangers.
“Once you combine HMRC’s push for increased revenue with a traditionally lax approach to debt management, a huge increase in winding-up petitions from HMRC is the result," Cook concludes.
“Businesses need as much help from HMRC in the exit from a recession as they do during a recession. With the prospect of a triple-dip recession, a consistent approach from HMRC to business support is needed.”
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