Business Secretary Kwasi Kwarteng reassures businesses that HMRC won’t heavy handed in their treatment of businesses that are in debt to the government.

We’re all still in the context of uncertainty. New variants of the coronavirus, ever-changing social distancing rules and evolving government support. Businesses are particularly worried about their survival as this last round of financial support comes to an end.

HMRC’s preferential creditor status

Last year HMRC was given ‘preferential creditor status’. This means that they’re first in line to be paid back in the event of a company’s insolvency. This means that any outstanding income tax or VAT bills would be due back first.

Leaders from across different industries have asked that HMRC uses this status for good, to ensure that as few businesses go under as possible. So many companies are in debt to the government after using emergency support and deferring tax bills where they can. Their inability to earn is the other, stunningly obvious, barrier to their ability to pay any outstanding tax bills.

Government response

Kwasi Kwarteng, the Business Secretary, replied to R3 The Association of Business Recovery Professionals and the Institute of Directors to reassure them. His main point is that enforcement will be directed at those businesses who don’t engage with HMRC, rather than those that simply can’t pay.

Part of the letter says:

“HMRC will take a cautious approach to enforcement of debt owed to Government that will have accrued during this period.

“It is right that where government has stepped up, through the general taxpayer, to support the economy during this national emergency, that business should do all it can to pay its fair share of taxes and repay back loans where it can.

“HMRC enforcement during this critical period however, will be largely driven by a lack of engagement by companies with it, rather than just their inability to pay and that using insolvency to enforce payment will remain a last resort.

“A flexible approach will be taken with those companies who engage with HMRC, with a view to bringing their debt into a managed arrangement.

“With the right controls, coupled with a cross-Government approach to its continued support and enforcement, will be vital to a return to a healthy and functioning economy.”

Hopefully, this is welcome bit of breathing space for companies in recovery. Although getting things arranged with HMRC takes longer than usual at the moment, that’s the way forward. Respond to any communication  from HMRC and get in touch as soon as you’re aware of a problem. The government has their eye on the economic rebuilding of the whole country – and your business is part of that. The more companies that can come back from this last dreadful 18 months, the better for everybody.