HMRC Turns Bad Cop In Quest For Revenue

by Robert Lee, Tax-News.com, London

01 December 2006

New research has revealed that HM Revenue and Customs has been taking a much less sympathetic approach to companies in financial difficulties, and is now more often than not the first creditor to seek company winding up orders.

According to the report by accounting and advisory firm UHY Hacker Young, HMRC now issues 58% of all petitions to wind companies up. Five years ago the HMRC was responsible for just 42% of these requests.

The research also found that while the overall number of petitions has only increased by 13% over the past five years, the number of petitions launched by the HMRC has increased by 38% over the same period.

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. This gave HMRC priority access to the assets of an insolvent business ahead of other creditors.

But under pressure to increase the tax take, HMRC is now taking a much more hard-nosed approach to troubled businesses, and notably so since the merger of the former Inland Revenue and HM Customs, observed Edward Cook, Partner at UHY's Hacker Young's Manchester office.

“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," Cook stated.

“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," he added.

Cook urged companies that find themselves in financial difficulties to negotiate an affordable payment plan with HMRC at an early stage.

“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," he warned.

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