This year we have seen a significant increase in enforcement action by HMRC. There has been a drive to collect in tax debts that accrued during the pandemic. We have also seen HMRC adopting a more rigorous approach towards time to pay arrangements.
This week it was reported that popular burger chain, Honest Burgers, received a winding up petition from HMRC after failing to negotiate a renewal of its time to pay arrangement with HMRC. The petition has now been resolved, but a spokesman for the burger chain expressed surprised at how quickly matters had escalated with HMRC.
So, when can HMRC present a winding up petition?
A winding up petition can be presented where a company owes HMRC a debt of £750 or more. This is a low threshold for businesses and will often be met where monies are owed to HMRC (for example, PAYE payments, unpaid VAT returns, national insurance contributions, unpaid corporation tax etc.).
The presentation of a winding up petition is a first step towards having a company wound up by the court. Petitions should only be used by HMRC where there are concerns about the company's ability to pay the tax debt, or the company's future looks uncertain.
Winding up petitions should not be used where the debt is disputed or there is a binding repayment agreement in place.
Where many businesses get caught out is on the issue of time to pay arrangements. Time to pay arrangements with HMRC are designed to be flexible. They are not intended to be a formal, fixed contract or a long term solution. HMRC can revisit them and adjust them if the business' financial circumstances changes. The length of the arrangement will depend on how much is owed and affordability, but HMRC will normally expect the company to take measures to improve its financial performance and establish a more sustainable funding model in parallel. Failure to take such steps may result in a renewal request being refused. Renewal requests may also be refused if the company is seen as having a high risk profile or HMRC form the view that extra time to pay is no longer necessary. It is therefore imperative that any businesses who currently have the benefit of a time to pay arrangement, prepare for the possibility that the arrangement may not be renewed and consider what alternatives might be available.
If you are struggling to renew a time to pay arrangement or facing pressure from HMRC, please contact Rachel Brown (Senior Associate) in our Restructuring and Insolvency Team by email at rachel.brown@howardkennedy.com, or your usual contact at Howard Kennedy LLP.
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