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More Businesses Being Wound Up By HMRC

by Robert Lee,, London

23 January 2013

The number of UK companies which HM Revenue and Customs sought to have wound up due to failure to pay tax increased by more than half in 2011-12 over the year previous.

According to accountancy firm Wilkins Kennedy LLP, the 57% increase in the number of companies forced into bankruptcy by HM Revenue and Customs (HMRC) represents a new hard-line stance by the tax authority, prompted by pressure from the government to raise extra revenue.

HMRC presented 5,302 petitions to wind up companies in tax year 2011-12, compared with 3,367 petitions in 2010-11.

According to Anthony Cork, a partner at the firm: "When businesses run into trouble, often one of the first things they do is try to delay tax payments to help manage their cashflow. This puts businesses on a collision course with HMRC."

"HMRC does not like being used as a 'lender of first resort,' and is keen to dispel the image that it is a soft touch or that the unauthorized late payment of taxes is an acceptable way for a business to resolve cash flow problems."

Cork explained that HMRC's approach "will put many small businesses in very precarious financial positions," and he blamed HMRC for failing to intervene earlier with businesses to help them manage their tax bills: "HMRC often lets tax debts spiral out of control, which leaves it with little choice but to resort to winding-up petitions to recover large amounts of unpaid taxes."

Cork also drew attention the HMRC's Time to Pay scheme, which gives what HMRC determines to be "viable" customers who cannot pay on the due date a few extra months to make payment. However, Cork noted that it is now "much harder to access Time to Pay help. By the time HMRC does act now, it is often too late to reclaim debts without putting the debtor out of business."

When a business receives a winding-up petition, legal proceedings can be avoided by payment in full to HMRC's Enforcement and Insolvency Service. Otherwise, the business will be subject to a hearing at the Companies Court in London, with costs added to the company’s existing debt.

TAGS: compliance | tax | small business | business | tax compliance | law | United Kingdom | small and medium-sized enterprises (SME)

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