Thousands of small companies could be facing an uncertain future as a result of HMRC’s clampdown on tax avoidance schemes, according to an insolvency trade body.
As HMRC steps up its demands for repayment, R3 says that companies are receiving demands for tens or even hundreds of thousands of pounds in potentially unpaid tax and national insurance contributions. HMRC has said it expects to issue nationally a further 40,000 demands by the end of 2016.
Spokesman for R3 Paul Barber and a partner at Begbies Traynor says the use of disputed tax schemes is not limited to big business and celebrities. ‘Up until 2011, tax schemes were widely used by small businesses operating in sectors such as IT, finance, construction, offshore oil and gas, and property. as a way to remunerate their senior staff.
‘Generally these businesses were acting in line with professional advice and had no reason at the time to think that these arrangements were not legitimate. One company I know had even received a tax rebate from HMRC as a result.’
Barber adds that while some no doubt want to avoid paying their tax bills, others see it as a way to reduce overheads and help their businesses through the recession.
‘Many of these are now receiving large tax demands that they have limited, if any, ability to pay and could be forced into insolvency. As yet it is unclear as to whether in some cases HMRC will seek to make directors personally liable under available legislation.’
The disputed schemes come in a range of guises including employee benefit trusts, contractor loans and film partnerships. When their use was banned in 2011, companies that had used such schemes before then were offered the opportunity to make a settlement out of court or face prosecution. While there are a number of legal cases in progress, a recent challenge was firmly rejected by the High Court.
HMRC is now collecting monies outstanding by issuing accelerated payment notices, a new tool which obliges companies to pay up within 90 days. It has raised £1 billion in tax so far and aims to raise £5.5 billion by March 2020.
Barber says, ‘HMRC has issued more than 24,000 notices since August 2014 and expects to have issued around 64,000 by the end of 2016 so there are still many companies which have yet to receive a demand through the door.
‘With HMRC set to gain powers to collect tax debts directly from bank accounts under the Finance Bill, and with growing public opinion that everybody should pay their dues, it is more important than ever for companies to engage with HMRC at an early stage and take professional advice to explore all options available.’