HMRC gets tougher with debtors

With insolvency experts predicting an increase in company failures, evidence is emerging that HMRC is adopting a harder line on outstanding debts and voluntary agreements.

Baker Tilly insolvency practitioner David Hudson warned an Institute of Credit Management conference in London this week that with the indicators pointing towards more businesses at risk, the number of firms seeking company voluntary arrangements would increase in the coming months.

CVAs are based on legal agreements with creditors that allow the company to keep trading while paying off its debts. While many creditors continue to see advantages in allowing struggling companies to try and trade their way out of trouble, Hudson and other insolvency practitioners at the event offered evidence of a harder line emerging from HMRC, the country’s most influential trade creditor.

“A CVA is like a legal ‘time to pay’ arrangement to give the company a breathing space,” said Hudson. “Banks tend to like them because they should end up with a better return for creditors. It’s a means of saving the company, not punishing the directors.”

In the past, HMRC appeared to be a great supporter of CVAs, noted Tony Groom of K2 Business Rescue. Recently, however, he noted that the department has been rejecting CVA proposals that would have approved in the past.

“HMRC website guidelines to case officers indicate that they should attempt to get arrears repaid within 12 months with longer periods being the exception,” said Groom. “This may explain why HMRC is now rejecting more proposals because its objective is to maximise early repayment contributions for clearing VAT and PAYE arrears rather than accepting those that propose a realistic repayment schedule with lower early repayments.”

As well as tightening its stance on Time to Pay arrangements and CVAs, the tax deparment’s treatment of outstanding debts is likely to get tougher in a plan to outsource collection. Following a pilot scheme last year in which it engaged four agencies to collect £140m in debuts, the department has put a £30m-£70m outsourcing contract out for tender. Hudson predicted that the move would produce a more consistent, but tougher stance on outstanding tax debts.

“HMRC is not consistent across the board. In some situations it will be very aggressive, but in others it will give a company more time to deal with debt,” said Hudson.

“My views are that there will be better consistency if it outsources collection. The process is driven through profit and we believe that will make a more aggressive culture. Is that good for economy or bad?”

Posted by John Stokdyk

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