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HMRC Responsible For More Companies Being Wound Up, Says UHY

by Jason Gorringe,, London

19 December 2007

Her Majesty’s Revenue & Customs (HMRC) is taking an increasingly aggressive stance against businesses which fall behind with tax payments, and is now responsible for 60% of petitions to wind up companies, up from 58% last year and just 42% in 2001, according to research from a panel of experts at accounting firm UHY Hacker Young.

The research suggests that HMRC is taking an increasingly hawkish approach towards businesses that owe it tax or national insurance contributions.

Experts at the firm say that since HMRC lost its status as a preferred creditor in 2003, it has been quicker to close down companies who have fallen behind with payments. Preferred creditor status gave HMRC access to the assets of an insolvent business ahead of other creditors.

Edward Cook, Partner at our Manchester office commented:

“HMRC is now clamping down on companies who have fallen behind with payments much earlier and more frequently. They want their money and if this means jobs have to be lost then so be it.”

“Whilst companies will generally have built up a good working relationship with their other creditors that will allow them to negotiate a standstill on payments it is now almost impossible for them to establish that kind of relationship with the taxman."

“HMRC won’t show any hesitation in pulling the plug if it thinks a company won’t be able to repay them," he concluded.

However, the panel argued that creditors can expect to receive far less for the business assets of a company forced into compulsory liquidation than if the company had been wound up voluntarily, or had entered administration with a pre-pack sale of the business as a going concern.

According to Edward Cook:

“Forcing a company into compulsory liquidation should be the very last resort. In our experience creditors can generally recover a higher proportion of the money owed to them if they can come to an agreement with the Directors, or if they can persuade the Directors to sell the business as a going concern usually through Administration."

“It may seem obvious but allowing a business to continue to trade and giving an Administrator time to market a business as a going concern will mean that potential buyers will value the business more highly. These figures suggest that HMRC is often too quick off the mark to wind up a business.”

Mr Cook concluded by recommending that if a company does fall behind on its tax or VAT payments, it should act quickly to negotiate an affordable repayment plan with HMRC.

“Company Directors who can’t come to a workable agreement with the taxman, or who break the terms of an agreement will find that HMRC will be very quick to push the button on their business,” he concluded.

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