In May, the Institute of Directors and R3 (trade association of Insolvency Practitioners and restructuring professionals), wrote to the government setting out the challenges facing business as restrictions unwind.
The letter referenced a “cliff edge” at the end of June 2021 when certain government initiatives to support businesses through the pandemic were due to end at a time when many businesses will still be suffering from poor cashflow and high debt levels. The government has since announced the further extension of certain initiatives.
Concerns were raised over the impact of HMRC’s approach to debt enforcement moving forward. Struggling businesses will often prioritise other liabilities such a rent , wages and supplies before their taxes. This means that HMRC is a creditor in almost all insolvencies, normally one of the larger ones. Pre pandemic, 1 in 10 insolvency proceedings were instigated by HMRC. The impact of the pandemic on cashflow and the ability to defer VAT means that many businesses have never had such large balances owed to HMRC. The letter expressed concern that viable businesses would find it impossible to reach agreements with creditors regarding debt repayments if HMRC take an aggressive approach resorting to insolvency.
The UK business secretary issued a response this week which states that HMRC will take a cautious approach to debt enforcement and that going forward the aim would be to agree managed arrangements. This does seem to indicate a shift from the pre pandemic attitude, however, the letter further states that insolvency will be pursued where there is a lack of engagement rather than just an inability to pay.
So, it seems that business owners can take comfort that pursuing agreements with creditors won’t be derailed and that HMRC will be open to repayment negotiations. However, a lack of engagement with HMRC will likely end in insolvency.
See more about stakeholder and cash management here – Cash Management: COVID-19 – Henderson Loggie (hlca.co.uk)