Unpaid taxes to HMRC balloon to £65 billion

17 September 2021 Consultancy.uk 4 min. read
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With the unpaid debt to HMRC having trebled in the pandemic, the tax office is likely to proceed with enforcement procedures to claw back outstanding amounts from the end of September 2021. According to Kroll expert Sushil Patel, companies should seek advice from consultants now to help avoid such drastic measures.

The effects of the coronavirus recession pushed businesses across the UK to the brink of collapse – threatening huge losses in asset value and jobs. Throughout the past year, the worst possible impacts of this situation have been offset, with UK corporates being supported with state initiatives during the height of the Covid-19 pandemic. As the country ends these measures, however, a huge number of firms find themselves in a precarious financial position.

Overdue debt to HMRC now stands at record levels, and the tax office likely to be under some pressure to collect revenue for what is a much-depleted Exchequer. In this context, it is imperative that directors proactively plan for the challenges ahead as they navigate their way out the other side of the Covid-19 pandemic.

HMRC Overdue Debt

According to Sushil Patel, a Director in the restructuring advisory wing of Kroll, overdue debt after the financial crisis in 2008 was around £26 billion. Following that peak, the figure reduced significantly over the last 10 years, averaging around £13 billion. However, this crept up to £19 billion in March 2020 – partially thanks to the early anticipation of Covid-19 in the marketplace – before ballooning to around £60 billion in just one year.

“HMRC has stated that the overdue debt balance was impacted by the start of the Covid-19 lockdown,” Patel explained. “HMRC fully expects there to be further substantial increases in the debt balance from 2020 to 2021 due to the ongoing economic impact of the pandemic. Therefore, HMRC will be under pressure to ensure these debts are collected and the Time-to-Pay (TTP) scheme will play a key part in this. HMRC’s role as a preferential creditor in insolvency proceedings will also increase pressure for it to engage with businesses in a proactive manner.”

A TTP arrangement with HMRC is a debt repayment plan for your outstanding taxes. Companies that have defaulted on their payments to settle their Corporation Tax, VAT and/or PAYE can ask HMRC for extra time to pay. The organisation will usually agree that companies can pay it back over six to 12 months.

TTP Debt Levels

Patel went on, “It is fully expected that the TTP value for 2020/21 will be around the £8 billion to £10 billion level and this estimate is based on HMRC’s historic bandwidth (and appetite) to agree TTPs under the scheme. The key questions will center around how the enforcement of the estimated balance of circa £50 billion of overdue debt from March 2021 will be handled.”

As HMRC looks to recoup its outstanding debts, it has already primed itself for action. Patel noted that while enforcement processes are expected to commence at the end of September 2021, HMRC had already announced in July that its Field Force Team (FFT) has started visits to businesses to assist in the collection of taxes. He added, that the FFT has “special powers in repossessing goods,” and that consulting with experts from the professional services world was one way to avoid such eventualities. For instance, he concluded, Kroll’s Tax Arrears Solution (TAS) team can “help businesses navigate through this legal process and negotiate payment plans with the FFT.”

Fellow Kroll expert Martin Gray also recently outlined some ways in which firms might prepare to repay post-pandemic debts. These included traditional sources of finance or a recapitalisation through equity means, as well as the UK Government’s new Recovery Loan Scheme – supporting borrowing of up to £10 million for individual businesses and up to £30 million across a group. As firms look to recover from the uncertainty of the pandemic, and manage their debts, the use of these proceeds could include cash flow management, growth, and investment.