HMRC are stepping up their collection of taxes from businesses:*
With their preferential status restored, there is likely to be more appetite for HMRC to use the petition route to either recover outstanding taxes quickly or force an insolvency process so they may receive funds as a preferential creditor. (At present, in insolvency scenarios, HMRC rank as an unsecured creditor and in the majority of insolvencies, will not recover any funds at present).
Traditionally, tax funds have been an integral part of a company’s ongoing cash flow providing much needed liquidity when cash is tight. However, in those cases where a company is unable to trade out of a precarious situation the effect will be that HMRC are likely to be more aggressive if there is a risk of HMRC arrears building. It is also that case that secured creditors will be more aggressive as their floating charge recoveries will be reduced by HMRC’s restored preferential status.
Draft legislation for the Finance Bill 2019/20 includes provisions allowing HMRC to make Directors and other parties personally liable (thereby “piercing the corporate veil”), if there is a risk that the company may enter insolvency (or already has entered insolvency) as long as certain conditions are met. Broadly, these provisions relate to situations where a company has entered into tax avoidance or tax evasive conduct or where there have been repeated insolvencies or non-payment of taxes (where the unpaid liability exceeds 50% of the amount owing to creditors).
As a result it is important that if your company experiences cash flow difficulties, you take robust advice from professional advisers to ensure you are not falling foul of the new regulations and also give yourself time to discuss and consider the right options to manage the position.
If you would like to to discuss the contents of this article in confidence, please get in touch today.
* Following the Budget announcement on 11th, this has now been pushed back to December 2020