Can I Negotiate with HMRC? How to Survive Large HMRC Debts

October 10, 2018

The vast majority of businesses have to make several payments to HMRC over the course of a year. Unfortunately, some businesses will fall behind on these payments and amass large debts.

In recent years, the Treasury has upped the pressure on HMRC to increase the amount of tax arrears being collected. In practice, what that means is HMRC is taking a tougher line with businesses, allowing them less time to repay their arrears before they take action.

The key difference between negotiating with HMRC then and negotiating with them now is that now you have to really understand how the process works and what their investigators expect from negotiations.

Simply put, if you understand what they want from the interaction, you are much more likely to successfully negotiate with HMRC and produce a positive outcome for your business.


What could my business owe?

HMRC has a very wide remit, which means businesses typically owe many different taxes and payments.

In this section, I have detailed the three of the most common debts owed to HMRC.

  • VAT: Businesses over the VAT threshold (£85,000) or those registered on a VAT accounting scheme are required to collect VAT on behalf of HMRC. The business must then pay the VAT to HMRC every three months. Any failure to pay is recorded as a default and may be liable to interest charges.
  • Corporation tax: Limited companies are required to pay tax on their annual profits. This is called corporation tax and is currently set at 19%. Corporation tax is reported nine months after the end of your accounting period.
  • Fines: If you are late paying HMRC, you may incur fines and other penalties.

This list is not exhaustive so don’t be surprised if you open a letter from HMRC demanding payment for something other than these three things. Other common payments include PAYE payments (income tax, employer’s national insurance, etc.) and capital gains tax (profits made from disposing of an asset).

As a business owner, it is your responsibility to keep track of what you owe to HMRC and make payment when the debt is due.


Negotiating with HMRC

Negotiations are all about effective communication and that starts long before any official discussions. Unfortunately, what I see quite a lot is business owners ignoring HMRC’s letters, phone calls and emails and then being surprised at their demands or even worse being told their business has already been put into insolvency.

When you’re dealing with HMRC, poor (or non-existent) communication is a cardinal sin.

It’s incredibly important to maintain strong communication channels even if you think you don’t have much to say or offer. Read and actively respond to everything to show HMRC that you want to work with them.

Now you’re actually talking to HMRC, you can start to think about how to progress your negotiations.


Understand your situation

HMRC can move much more quickly than other creditors to recover a debt so time is very much of the essence.

First, you need to understand what department you are dealing with. This will tell you what stage of the debt recovery process you are at and therefore how much time you have left to negotiate.

Second, your returns must be completed and submitted to HMRC. Even if you believe you are unable to pay, you still have to complete and submit your returns.

Third and finally, you need to understand your business’ finances. If you don’t understand your own position, you won’t know what sort of repayment plan is realistic and achievable.

Before you can start negotiating, you need to produce reliable accounting information and create realistic forecasts. Notice I said reliable and realistic. At this point, there is no point massaging figures to pump your ego. Be brutally honest with yourself to produce an accurate account of your business.


Time to Pay arrangement

While it might not seem like it, HMRC does understand that businesses experience serious challenges. If investigators believe you are facing a genuine cash flow problem, they may be willing to offer what’s called a Time to Pay (TTP) arrangement.

A TTP arrangement is a formal agreement between a business and HMRC that grants the business extra time to repay their debts. Instead of paying the full debt immediately, the business is permitted to pay it off in instalments over a period of up to 12 months.

The precise details of the TTP arrangement — monthly payments, arrangement duration, etc. — are all determined during the negotiations with HMRC.

It’s important you are completely honest with HMRC during these discussions as any dishonest information you provide could result in the arrangement being cancelled at a later date. Also, do not overcommit and agree to unrealistic payments as this will reduce the likelihood of a successful recovery.

Finally, remember that you may only get one shot at a TTP. If you break a promise or default on a payment, that’s usually the end of the negotiations and HMRC will immediately demand payment in full. If that demand fails, they will likely take insolvency action.


Get professional advice

As I mentioned before, you have to understand how HMRC operates in order to negotiate successfully. With that in mind, many businesses will appoint a professional organisation to negotiate on their behalf.

A suitably experienced and qualified organisation will be able to help you throughout the process, assisting with the analysis of your business, the actual negotiations with HMRC and everything in between.

At 180 Advisory Solutions, we have extensive experience dealing with HMRC and would be happy to work with your business. For a free initial conversation, contact our team today.


HMRC debt management support

If you owe debts to HMRC and are worried about repaying them, please get in touch with our team for free initial advice.

Generally speaking, the longer you leave it, the less likely HMRC will be to agree to any proposals. So click here to talk to a member of our team today.

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