More severe enforcement by HMRC as the average amount due to HMRC in UK insolvencies doubles
The Government introduced insolvency protection for businesses during the Covid-19 Pandemic through the Corporate Insolvency and Governance Act 2020. Amongst other things, this prevented creditors from issuing Winding-Up petitions against companies for not paying their debts. This of course included HMRC. As these protections have been wound down and removed, our Insolvency Practitioners report that we are seeing a significant increase in the number of Winding Up Petitions being issued by HMRC.
The removal of protections
The Winding Up protection measures started to be phased out from 1st October 2021 and were completely removed on 1st April 2022. The aim of the measures was to ensure that viable businesses were not forced into insolvency unnecessarily having been severely affected by the lockdown restrictions through no fault of their own. It is broadly agreed that they did their job.
However, with protection now phased out, HMRC has adopted a harder stance towards recovering unpaid tax. Between November 2021 and March 2022, Government statistics show that HMRC only accounted for 8% of all Winding-Up petitions. By April 2022, this figure had risen to 20% and by June it was nearly 50%. This level has continued into August, according to Infolink Gazette, with “26 winding up petitions out of a total of 56 Initial Stage Winding up Petitions filed in the High Courts last week (19/08/22).” At the same time, the average amount due to HMRC in UK insolvencies has doubled to £159,000 from the pre-pandemic average of £80,000.
There have been some high profile Winding Up Petitions recently, in particular the one received by Premiership rugby club Worcester Warriors, who, it is alleged, owe HMRC over £6 million.
Why has HMRC hardened its stance?
Inevitably, as the Pandemic has eased and protections have ended, there were going to be many companies who needed a strong bounce back to rebuild their fortunes. That recovery has been choked off by rapidly rising inflation and this has coincided with HMRC’s harder stance towards recovering unpaid tax. In part, this is due to HMRC’s new status as a secondary preferential creditor, which took effect from 1st December 2020.
This new status means HMRC will be repaid before unsecured and floating charge creditors for such tax debts as VAT, income tax and employee NI. As a result, HMRC has a greater chance of being repaid now when it pursues a winding-up action than it did pre-1st December 2020, and this is one of the reasons for their renewed activity in this area.
As Worcester Warriors have found, the decision to issue a Winding Up Petition can be made very quickly, usually with the arrival of a letter using the following standard wording:
“If you do not make payment, in full, within seven days of the date of this letter I will instruct the Solicitor of HM Revenue & Customs to present a petition to the High Court to wind up the company without further warning, on the grounds that the company is unable to pay its debts.”
What can Insolvency Practitioners do to help?
We are not just here for the compulsory and unavoidable liquidations. We are also here to help companies in financial difficulties to recover and turn things around, whether that is through restructuring and refinancing or through an insolvency procedure such as an Administration or a Company Voluntary Arrangement which can deliver the breathing space that companies need to get back on the road to recovery.
Our advice is that if you know that the underlying position of your company is weak, then act now! Do not wait until the warning letter arrives from HMRC. And if it does, immediate contact should be made with our Insolvency Practitioners so that we can talk to HMRC to discuss and agree a repayment proposal or Time to Pay as a starting point.
The sooner you contact an Insolvency Practitioner, such as Antony Batty & Company, the sooner we can recommend a solution. We will talk you through all the options available, so that you know exactly where you are, helping you to make the best possible decisions. The first discussion is free.
In the meantime, if you need our help and advice in any of our specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the phone or over a coffee.
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