For a small business taxation feels like an unwanted expense which may be seen to interfere with the running of the company’s affairs. Indeed it is often overlooked by directors that tax receipts are collected on behalf of Her Majesty’s Revenue and Customs (“HMRC”) and never comprise an additional cost - it is only when that tax collected is spent does the problem of paying that same money over to HMRC arise.
Tax arrears are one of the biggest cause of insolvency of small companies in the UK and HMRC is almost always invariably the largest creditor in the majority of company insolvencies.
In our experience these arrears are caused by the indirect or delayed nature of most tax liabilities, as most company’s trading costs are incurred and paid at the point of purchase and supply of the goods and services, so the tax liability to HMRC is not immediately payable and relies on an orderly accounting of such funds and the need to reserve them against future tax liabilities. Indeed, the tax regulations require a company and its directors to be self-governing in terms of calculating the tax, filing returns and making payments.
Not everyone’s business is structured in sufficient detail to make this easy to do, although it should be reiterated that every business owner and every director of a UK registered or unregistered company is expected to be competent enough to ensure that such legal obligations are met. Ignorance is no excuse.
HMRC as a creditor of your business
The obligation to pay sums due to HMRC is very different to the demands of an unsecured trade creditor who will (or should) very quickly let you if you are in arrears and may withhold supply of goods or services and press for early payment. It is as a result of this lack of immediate enforcement and reliance on the tax payer being sufficiently organised that often leads to HMRC being one of the more forgotten amongst unsecured creditors, especially following difficult trading situations.
Companies and businesses face a large range of tax liabilities which they are subject to but most commonly the taxes they are likely to face comprise Value Added Tax (“VAT”), Pay as You Earn and National Insurance Contributions (“PAYE/NIC”) and, for companies, Corporation Tax.
Enforcement by HMRC
Once tax falls into arrears, your business will face ever increasing competition as you will continue to face the requirement to provide for ongoing tax demands in addition to making arrangements to repay tax arrears.
Equally, as a business owner, your efforts to mitigate your business’ exposure to tax may fall foul of legal changes to what is perceived as disguised remuneration and so it is important to ensure that you and your business’ tax affairs are managed properly, as the risk of enforcement by HMRC can have catastrophic effects.
There are a number of tools available to you if you act early on. At Francis Wilks & Jones we do not seek to advise you on all forms of taxation, which is the province of a company’s accountant, but seeks to address the problems you, your business or your company faces when seeking to deal with claims by HMRC, either as a result of difficult trading circumstances or as a result of tax schemes entered into.
For a Director or owner of an SME business, the following are links to pages which deal with some of the initial considerations you should have when considering your company’s tax planning strategy:
Whilst too many business owners and company directors tax is not the priority for their expanding empire, without seriously considering the implications of HMRC’s legal powers from the start your business will very quickly come to an end, with serious consequences for you personally.
At Francis Wilks & Jones we are able to advise on your options and/or assist with any legal matters arising in respect of the above taxes, particularly as a result of enforcement by HMRC and particularly with regard to the risk to you personally, whether you are a sole trader, partner or Director.
Please call any member of our Tax Disputes Team for your consultation now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.