Unpaid taxes at £ 65bn HMRC balloon

With unpaid debt to HMRC having tripled during the pandemic, the tax office is expected to initiate enforcement proceedings to recover the unpaid amounts from the end of September 2021. According to Kroll expert Sushil Patel, companies should seek advice from consultants now to help them. avoid such drastic measures.

The effects of the coronavirus recession have pushed businesses across the UK to the brink of collapse – threatening huge losses in asset values ​​and jobs. Throughout the past year, the worst possible impacts of this situation have been offset, with UK businesses supported by state initiatives at the height of the Covid-19 pandemic. However, as the country ends these measures, a large number of companies find themselves in a precarious financial situation.

Outstanding debt to HMRC is now at record levels, and the tax office will likely be under some pressure to collect revenue for what is a very exhausted chess board. Against this backdrop, it is imperative that administrators proactively plan for the challenges ahead as they navigate the other side of the Covid-19 pandemic.

According to Sushil Patel, director of Kroll’s restructuring advisory wing, past due debt after the 2008 financial crisis was around £ 26 billion. After that peak, the figure has declined significantly over the past 10 years, to an average of around £ 13bn. However, that climbed to £ 19bn in March 2020 – in part thanks to the early anticipation of Covid-19 in the market – before skyrocketing to around £ 60bn in just one year.

“HMRC said the outstanding debt balance had been affected by the start of the Covid-19 lockdown,” Patel explained. “HMRC fully expects that there will be further substantial increases in the debt balance from 2020 to 2021 due to the continued economic impact of the pandemic. Therefore, HMRC will be under pressure to ensure that these debts are collected and the Time-to-Pay (TTP) program will play a key role in this regard. HMRC’s role as a preferred creditor in insolvency proceedings will also increase pressure to proactively engage with businesses.

A TTP agreement with HMRC is a debt repayment plan for your unpaid taxes. Companies that have defaulted on their payments to settle their corporate tax, VAT and / or PAYE can apply to HMRC for an additional payment delay. The organization will generally agree that companies can repay it over six to 12 months.

Patel continued: ‘It is fully expected that the TTP value for 2020/21 will be around £ 8-10 billion and this estimate is based on HMRC’s historical bandwidth (and appetite) to suit. of TTP as part of the program. Key questions will focus on how the execution of the estimated balance of around £ 50bn of overdue debt from March 2021 will be handled. “

As HMRC seeks to collect its unpaid debts, it has already prepared for action. Patel noted that while application processes are expected to begin in late September 2021, HMRC had already announced in July that its field team (FFT) had started visiting businesses to help with tax collection. He added that the FFT has “special powers to repossess property” and that consulting experts in the world of professional services was one way to avoid such eventualities. For example, he concluded, Kroll’s Tax Arrears Solution (TAS) team can “help businesses navigate this legal process and negotiate payment plans with the FFT.”

Another Kroll expert, Martin Gray, also recently described some ways companies could prepare to pay off post-pandemic debt. These included traditional sources of funding or equity recapitalization, as well as the UK government’s new payback loan scheme – supporting borrowing of up to £ 10million for individual businesses and up to £ 30million for a group. As businesses seek to recover from the uncertainty of the pandemic and manage their debts, the use of these products could include cash flow management, growth and investing.