Written by: Keith Tully
The government has indicated that HMRC will adopt a “cautious approach” to recovering debts from companies that have struggled to pay their taxes during the Covid pandemic.
A letter outlining that position has been written by business secretary Kwasi Kwarteng and sent to business groups, who have raised concerns about the potential for a wave of insolvencies to hit the UK in the second half of 2021.
The Institute of Directors and the insolvency industry trade body R3 have been among the organisations lobbying for debtors to HMRC to be given further support and protections as they seek to recover from the Covid crisis.
Many thousands of businesses have been protected from their creditors in recent quarters by emergency Covid legislation but those protections are set to be wound down from July.
For a significant proportion of the companies currently in serious financial difficulty, HMRC is among their main creditors because their tax bills have been stacking up.
HMRC was granted “preferential creditor status” in 2020, meaning it can legally insist on having its debts repaid first in the event of a company becoming insolvent.
As a result, if HMRC were to adopt an aggressive approach to pursuing its debts in the coming months that could lead to a large number of companies across the country being forced out of business.
Explaining the government’s position on some of the key issues at play, Mr Kwarteng wrote in his letter to business groups that HMRC enforcement “will be largely driven by a lack of engagement by companies with it, rather than just their inability to pay”.
Mr Kwarteng also made clear in the letter, seen by the Financial Times, that in the context of HMRC pursuing its debts “using insolvency to enforce payment will remain a last resort”.
For its part, HMRC is quoted as saying: “Protecting livelihoods and keeping people in work remains our priority, as it has been throughout the pandemic.
“We will always work constructively with customers to avoid the need for insolvency and will only take action if a customer does not respond or engage with us.”
The government recently announced it would extend by three months the temporary restrictions on winding up orders in response to the latest changes to plans around public health related Covid restrictions.
An R3 spokesperson welcomed the extension of those protections for businesses but recommended company directors struggling to manage their debts “seek advice from a qualified professional and do so as early as possible, so they can benefit from the broadest range of options available”.
13th October 2021
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