HMRC applications to wind up businesses in order to recover unpaid tax rose 12 per cent last year, up to 3,906 in 2016 from 3,485 in 2015, says Funding Options, the online business finance supermarket.
Funding Options says that if HMRC is successful in obtaining a winding up order from a court, the business concerned will be forced to close, and its assets liquidated to pay outstanding tax bills.
Funding Options adds that the increase highlights just how far HMRC is prepared to go to recover unpaid tax. HMRC has faced sustained political pressure to continue to clamp down on those who are perceived not to be paying their fair share to the Exchequer.
Funding Options has warned that in addition to being wound up, businesses face other debilitating consequences if they cannot afford to pay tax bills on time. HMRC also has the power to seize business assets and levy substantial penalties on businesses that fail to pay their tax arrears.
Funding Options says that the rise suggests that businesses continue to face cash flow challenges despite the UK’s reasonably robust economy, especially around major tax deadlines such as due dates for VAT or corporation tax bills.
SMEs are likely to be particularly affected as they can struggle to access to traditional loans and overdrafts which give businesses a financial cushion. Loans used to cover peaks and troughs in cash flow continue to be curtailed as regulators require banks to strengthen their balance sheets.
According to Funding Options, in 2016 HMRC successfully obtained 2,065 winding-up orders, up from 1,944 in 2015.
It says that businesses who are struggling to stay on top of their tax bills should urgently consider alternative options well ahead of a tax payment becoming due to avoid triggering this nuclear option.’
Funding Options points out that although banks are reluctant to lend for the purpose of covering tax bills, other sources of funding may be available through specialist providers. Invoice finance, asset finance, peer-to-peer lending and crowdfunding can all help businesses prevent the Revenue from shutting them down to pursue backdated payments.
Conrad Ford, CEO of Funding Options says, ‘Shutting a company down is the biggest weapon in HMRC’s arsenal, but it’s one the taxman is using more and more.
‘HMRC faces a difficult balancing act of whether it should aggressively shut down businesses.
‘In these extreme circumstances, companies may have some difficult choices to make between paying employees or suppliers and paying their tax bill.’
Ford adds, ‘It’s vital that businesses don’t stick their heads in the sand: SMEs need to try to work with HMRC to prevent arrears backing up. They should also take pro-active steps to make sure they have a funding safety net readily available for when they need it.
‘With Brexit creating on-going uncertainty over the economic outlook for many businesses, this is more important than ever.’
Conrad Ford concludes, ‘The good news is that identifying the right source of funding is becoming easier thanks to the government’s Bank Referral Scheme, which provides access to alternative finance for firms unable to obtain traditional loans.
‘As one of three platforms selected to field referrals under this scheme, at Funding Options we are seeing businesses becoming increasingly open to the potential benefits of options such as securing lending against the value of assets or unpaid invoices, P2P lending or crowdfunding.’