The UK Government extended its moratorium preventing small firms from being wound up through insolvency until the end of September. However, that holiday period is fast drawing to a close.
Many business groups have grown anxious about the many businesses that have deferred taxes, including VAT returns, that will need repaying as the country emerges fully from the pandemic.
Business Secretary Kwasi Kwarteng penned a letter to the Institute of Directors and R3, which represents insolvency firms. Mr Kwarteng stated that he and the Government acknowledge the “path back to full trading and coming off Government support will be difficult for many companies”.
With hundreds of thousands of small businesses concerned about the threat of insolvency due to money owed via tax deferral, Government loans and emergency support schemes, Mr Kwarteng insisted that HMRC will adopt a “cautious approach to the enforcement of debt owed to Government”.
He added that this would also consider “the number of loans and support schemes given” throughout the coronavirus crisis.
“It is right that where Government has stepped up, through the general taxpayer, to support the economy during this national emergency, that business should do all it can to pay its fair share of taxes and repay back loans where it can,” added Mr Kwarteng.
When it comes to unpaid bills, overdue tax and VAT payments generally take precedence. That’s because HMRC has preferential creditor status, meaning they are paid first in certain insolvency processes. Mr Kwarteng insisted that, wherever possible, HMRC would attempt to bring a business’ debts into a “managed arrangement”.
An HMRC spokesperson said in a statement that pursuing insolvency action would only be a “last resort after considering all alternative routes to recovery of a debt”.
Furthermore, HMRC will only “take action if a customer does not respond or engage with us”.
Date published 25 Jun 2021