Dealing With HM Revenue & Customs In The Current Climate 23 June 2010
The stance taken by HM Revenue & Customs ("HMRC") appears to have changed over the course of the last few months.
Figures released by HMRC show that amounts owed increased to in excess of £20 billion, and that more than £5 billion (of PAYE and VAT) had been deferred by way of over 300,000 "Time-to-Pay" arrangements since the inception of the Business Payment Support Service in late 2008.
However, it appears that HMRC is no longer as willing to be "lender of first resort" and expects companies seeking deferment to strictly adhere to repayment plans, and in cases involving deferment of over £1 million, companies are required to bear the cost of an Independent Business Review ("IBR"). The purpose of the IBR is to confirm the company's ability to pay in the longer term and its longer-term viability. In the event that such restructured payment plans are not adhered to, there is now the very likely threat of recovery action and often a winding-up petition.
As part of the "Time-to-Pay" arrangements, HMRC now also expects companies to approach their other creditors as part of an overall arrangement in respect of their various debts. In many cases this will mean approaching their banking partners too.
Our experience of such situations is that banks are keen to stay appraised of the position with HMRC and generally seek formal confirmation of the "Time-to-Pay" agreement – and until that is received they remain extremely nervous. The manner of approach, timing of requests and provision of financial and related information to both HMRC and the bank is vital and requires a well thought out plan and subsequent execution to ensure success.
Typical information requested by both HMRC and the bank includes up-to-date management accounts, financial forecasts covering (as a minimum) the repayment period, details of steps taken to reduce costs, arrangements with other creditors, directors salary reductions and possible guarantees, other financial options being explored, and details of current and expected trading. Professional advice taken in conjunction with these steps also plays an important part in discussions and subsequent negotiations with both parties.
Information released to IT provider Syscap under the freedom of information act in May 2010 showed that HMRC rejections of Time-to-Pay applications had doubled compared to the same period last year. This, in conjunction with HMRC's "tightening" stance may result in an increase in corporate insolvencies.
CR Corporate Solutions experience of dealing with HMRC in these situations has been that there is a lack of consistency from HMRC in Time-to-Pay requests and that the timing of discussions, provision of information and structure of arrangements requires great thought, a well structured plan and excellent execution. Comfort is often taken as a result of the engagement of a professional firm to deal with such matters and this can often assist in negotiations.
We have recently secured the deferral of over £500k over a period of twelve months for a client where the company was previously unable to agree such an arrangement themselves.
CR Corporate Solutions provides a range of services to Owner Managed Businesses and their Financial Stakeholders, producing sustainable long-term improvements in client's profitability, cash flow and shareholder value.
We would be delighted to have an informal discussion to explore areas where we may be able to assist Owner Managed Businesses in their relationship with HM Revenue & Customs, their bank and any related financial issues.
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