Managing HMRC debt during the pandemic

Tax owed to HMRC

The amount of tax owed to HMRC during the COVID-19 pandemic has more than doubled from pre-pandemic levels (a total of £42 billion was owed to HMRC as the end of September 2021 according to a recent National Audit Office report).

This has largely been a result of the economic impact of the pandemic on taxpayers and the switch by HMRC from a focus on debt collection to a support role including in relation to the various support schemes and grants introduced.

There has also been fraud identified primarily under the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS).

HMRC approach

HMRC has adapted and tailored its approach to respond to the issues faced from the pandemic including:

  • launching a HMRC Coronavirus helpline to provide taxpayers with advice
  • reallocating staff to assist with CJRS and SEISS applications and the administration of the schemes
  • extending access to online repayment tools for larger debts and VAT payments
  • agreeing longer Time to Pay arrangements (including over a year) on a case-by-case basis acknowledging it may be unrealistic for taxpayers to clear their debts under normal timescales
  • setting up a taskforce to pursue faulty and fraudulent claims under the COVID-19 support schemes
  • developing a process to identify companies at high risk of insolvency and tailoring taxpayer communications accordingly

HMRC have advised they will strike a balance between pursuing debt and giving taxpayers time to financially recover from the impact of the pandemic.

Early dialogue with HMRC is recommended

Taxpayers should continue to file tax returns on time.

Taxpayers are encouraged to contact HMRC if they are having difficulty paying a tax debt. HMRC should be contacted as soon as a tax deadline has been missed or it is known that a tax payment will be late.

HMRC is willing to discuss specific arrangements in relation to tax repayments on a case-by-case basis.

Time to Pay arrangements

A Time to Pay arrangement is where HMRC formally agrees for repayments to be made in monthly instalments.

HMRC have advised there is currently no limit on how long a Time to Pay arrangement could last and the length agreed by HMRC depends on the amount owed and the taxpayer’s affordability.  If circumstances change, HMRC will consider Time to Pay arrangements being extended or shortened, subject to its agreement.

A Time to Pay arrangement cannot be set up if HMRC do not believe a repayment plan will be adhered to. For example, where taxes have in the past been left unpaid.

Consequences of failing to repay tax debts

HMRC will always attempt to contact the taxpayer if a tax payment is missed.

As the economy starts to recover from the pandemic, HMRC will return to its focus on debt collection.

If a repayment plan cannot be agreed with HMRC, HMRC may request for the amount to be paid in full.

Although HMRC will work with taxpayers to collect the tax due in a way that is fair to their circumstances and considers the impact of the pandemic, HMRC has advised that it will consider commencing insolvency proceedings where a customer does not engage with HMRC regarding a tax debt or continues to build up unpaid tax with no viable plan for repaying the amount due.

HMRC has advised it will start to take further action against some companies, where appropriate, after considering all alternative routes to recovery.

Where the lodging of a winding up petition in respect of a company is being considered by HMRC, companies will be given at least 21 days to respond with a proposal for repayment before HMRC proceeds with the action in line with the current restrictions on winding up petitions in place until 31 March 2022.

HMRC will usually pursue insolvency proceedings where:

  • a taxpayer’s debt is deemed by HMRC to be not recoverable or
  • tax avoidance is suspected or
  • fraud is suspected.

If any taxpayer is concerned about their tax position following discussions with HMRC, please do not hesitate to contact our Business Recovery & Insolvency team at Henderson Loggie to arrange an initial meeting to discuss the options available.

Get in touch

Shona Campbell

Shona Campbell

I head up the Business Recovery and Insolvency team at Henderson Loggie and have over twenty years of experience advising businesses, the majority of that time dealing with businesses facing some form of financial difficulty….
Margaret Linn

Margaret Linn

I have 25 years’ experience working in Insolvency, both personal and corporate.  I advise individuals and company directors who find themselves in financial difficulty and am committed to finding a tailored solution that serves the…
Lianne Fraser

Lianne Fraser

I am an ACCA qualified Assistant Manager in the Business Recovery & Insolvency team and joined Henderson Loggie in 2020.  I have 9 years’ experience in the administration of corporate insolvencies (Administrations, Court and Creditors’…