29 November 2006
As part of its debt collection offensive Her Majesty’s Revenue & Customs (HMRC) now issues 58% of all the petitions to wind companies up, our research reveals. Five years ago the HMRC was responsible for just 42% of all the requests to wind companies up.*
UHY Hacker Young says that the HMRC’s more aggressive stance towards businesses that owe it tax or national insurance is partly due to its loss of preferred creditor status in September 2003. Preferred status gave HMRC priority access to the assets of an insolvent business ahead of other creditors. Now they have to share more of the recovered assets with other creditors they are having companies wound up earlier and more frequently.
HMRC is under a lot of pressure to shrink the Treasury’s deficit and the result is that they are taking a more hard nosed response to debt collection. Since the merger of the Inland Revenue and Customs & Excise there has been a noticeably more hawkish approach taken towards collecting tax revenue.
Edward Cook, Partner at our Manchester office; says “If HMRC feel that the company isn’t going to be able to repay them then they are willing to push the button on them a lot earlier.”
“Companies will normally have established a good working relationship with most of their other creditors such as trade suppliers. Sadly no such goodwill exists with the HMRC and companies don’t get much sympathy from the taxman when they fall behind on payments.”
“It is only when the HMRC feel certain they will recoup more money by allowing a company to trade out of its difficulties that they will then cut the company slack.”
“Forcing a business into liquidation is a questionable strategy as our experience is that creditors normally get a higher dividend from allowing a company to continue to trade.”
Edward Cook says that if a company does fall behind in its tax or NI payments then they need to negotiate an affordable repayment plan with HMRC.
Says Edward Cook: “There is no point agreeing a payment plan with HMRC that you can’t stick to. It may get the negotiations finished quicker but if you fall behind the new plan then they are going to look at that very unfavourably. It is often at this point that the HMRC decide to wind a company up.”
Whilst the number of petitions launched by the HMRC has increased by 38% in the last five years the overall number of petitions has only increased by 13% in the same period (11,776 in the past 12 months**).
Our research also highlights problems that creditors of building companies have. 6% of all petitions lodged to wind companies up were from two builders merchants.
Edward Cook comments: “The building industry has always been volatile with many smaller operators finding it hard to deal with the risks involved in taking on projects at agreed budgets.”
“In addition there are a large number of rogue traders in this sector who establish large credit lines with the builders merchants solely with the intention of reselling the goods through the back door and running off with the proceeds. As a result builders merchants are always quick to pursue debts owed to them in order to protect their own businesses.”
*Research based on a sample of over 2100 petitions
**Department for Constitutional Affairs
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