When companies face cashflow crises, management is struggling to cope and failure is imminent, often the major creditor pressure is from one source – HMRC. HMRC liaison is therefore something we end up doing a lot!
Since 2003 the HMRC is NOT a preferential creditor and does not rank ahead of the bank. Actually the HMRC debt is unsecured and ranks alongside trade creditors. But this often doesn’t matter to a worried bank.
Banks worry about the pressure that HMRC can bring to bear. Bailiffs, distraint, winding up petitions. These can precipitate the failure of the company and bankers worry about their ability to control this. What happens if their client gets a winding up petition from HMRC?
So a threat from HMRC can bring down the deck of cards and the bank may exercise its right to appoint administrators. Worrying times.
HMRC Time to Pay Deals
The company may have had a time to pay deal or TTP with HMRC during the last 2-3 years of the recession. That “easy deal” acceptance phase is now past us and it is evident that the attitude of HMRC has changed.
Here at KSA, we have seen a marked change in compliance requirements from HMRC since April 2011 when the new tax year began. If your company or your client’s company has had a TTP or several TTP’s in the past, we can advise that it is highly unlikely that HMRC will accept another proposal from it for a TTP.
Anecdotal, we are hearing from clients that even current TTP’s, that are still up to date, are being “pulled” by HMRC and they are asking for faster repayments.
This signals a tougher regime by the tax collector and we are finding that they will need a lot of persuasion for TTP deals. We have even noticed that CVAs are subject to greater scrutiny now, so be warned the “Easy Bank of HMRC” is no longer open for business!
That’s not to say that a well composed and structured application for a time to pay deal by a professional turnaround and insolvency firm faces the same rejection rate.
Trading out Plan “A” for UK Companies
Plan “A” can be a powerful way to buy time, postpone debts and also help restructure the business. You as accountant, or professional advisor, can negotiate with creditors on their behalf and attempt to get a breathing space for recovery. It is essential to get ALL information, cashflows, sales forecasts and costs for the company. Then set out an agreed plan of action. That last is often the hardest part; the directors are often like the proverbial rabbit in the headlights and will often be emotionally challenged.
If there is a wider problem or large HMRC debts say over £50,000, then KSA Group’s professional debt negotiators can do this work for a fee. We would always do the following:
- Meet with the client and understand the business, the directors’ objectives and assess the viability of the business.
- Assess all debts and assets.
- Set out a statement of affairs – insolvency speak for presenting the outcome of the business if it ceased trading (liquidation or administration) versus a recovery outcome.
- Set out a 90 day cashflow forecast and a medium term cashflow forecast
- Set out a plan with the board and then negotiate with the principle creditors.
There is of course no guarantee of successful agreement for you as say an accountant or for KSA. However, we spend almost all day every day negotiating debts with banks, HMRC and trade suppliers. Often this leads to creditors standing back from the issues and looking at the wider solution.
Given that a professional advisor is setting out a way to get them their money back, the creditors including HMRC, will generally respond favourably. Better to get 100p in £1 of debts over time than very little from sequestration, surely?
What if the debts are too high to service and there needs to be some debt forgiveness? Then a company voluntary arrangement may be the powerful solution that the business needs.
What if there is no hope? Then liquidation or administration are the next options to consider.
A well argued and professionally presented “deal” may still be accepted by HMRC, but there has to be compelling reasons and evidence to back this up. Cashflow, profit and loss forecasts, business plan and the statement of affairs are vital to support this proposal. Then a tenacious negotiator is required to get the tax collector to agree.
Using the “good offices” of KSA Group can lead a viable deal and one that is cost effective compared to administration. Contact KSA on 0800 9700539 for a confidential chat.