Understanding HMRC debt collection in Scotland
For many businesses in Scotland, HMRC is often the largest and most pressing creditor. Falling behind on VAT, PAYE, or Corporation Tax payments can quickly escalate into serious financial problems. HMRC has extensive powers to recover money owed by limited companies, and they are often surprisingly quick to take action.
If your company is struggling with HMRC arrears, it’s essential to understand what action they can take and what your options are.
Understanding HMRC’s powers of debt recovery in Scotland
As a huge government department, HMRC has more enforcement powers than most other creditors. If your company in Scotland cannot pay its tax liabilities, HMRC will take action unless you come to an arrangement with them to pay the money you owe.
The action HMRC can take against your company ranges from late penalty charges through to petitioning the courts to have your company forced into compulsory liquidation.
This action will typically escalate in severity the longer you let the situation continue. Here are some of the collection methods HMRC have at their disposal:
- Penalties and Interest
Late payments usually attract automatic interest charges and penalties, which increase the overall debt and can put a further strain on cash flow, making it even more difficult for your company to clear its HMRC debts.
- Control of Goods (Distraint)
HMRC can instruct enforcement officers to visit company premises and seize assets to cover the tax debt. Assets such as stock, vehicles, or equipment may be sold at auction to raise funds.
- Freezing Bank Accounts
Although used less frequently, HMRC has the ability to recover tax debts directly from a company’s bank account. This can leave a business unable to trade.
- Winding-Up Petition
If a company cannot pay its tax debts and no arrangement is in place, HMRC can petition the Scottish courts to wind up the company and force it into liquidation. A Winding Up Petition is often the last resort but is used when all other recovery attempts fail. If the court grants a winding up order, the company will be placed into compulsory liquidation.
What are my options if HMRC is threatening action against my company?
If you’ve received letters from HMRC threatening enforcement, the worst thing you can do is ignore them. Acting early gives you the best chance of protecting your company and avoiding forced liquidation. Options may include:
- Negotiating a Time to Pay arrangement – This will give you the chance to repay your tax debts via a series of affordable monthly instalments
- Refinancing or restructuring company debts – This may allow you to free up some cash flow to repay HMRC
- Enter into a Company Voluntary Arrangement (CVA) – this is a formal insolvency process which will allow you to pay your creditors (including HMRC) a reduced monthly contribution towards your debts
Consider a Creditors’ Voluntary Liquidation (CVL) – while this will signal the end of your limited company, if it cannot be saved due to mounting business debts owed to HMRC and other creditors, this may be the best option for all parties concerned.
How Scotland Liquidators can help
HMRC has wide-ranging powers to recover unpaid tax in Scotland, from penalties and asset seizures to forcing a company into liquidation. While this may sound daunting, there are always options available if you act quickly.
At Scotland Liquidators, our team of licensed insolvency practitioners help directors explore their options and can liaise with HMRC on your behalf. Contact us today for immediate help and advice.
