Why Are HMRC A Priority Creditor?

If your business is struggling to meet its financial responsibilities, it is never recommended that you choose to pay one creditor over the other. In an insolvency situation, preferential payments can be challenged and even overturned. However, with any business, there is always one creditor that should be paid as a priority: HMRC.

Often neglected, either intentionally or due to oversight, HMRC has wide-reaching powers, rarely negotiates and will not hesitate to close your company. These factors, amongst others, make them the creditor that you can’t afford not to pay. Read on to find out exactly what makes HMRC so perilous.

Recovery Powers & More…

As mentioned above, HMRC has a wide range of powers that can be used to recover debts. These range from repossession of assets to forcing your business into liquidation. Generally, they will give some leniency when a few payments are missed. However, if your debts are historic (more than 12 months) or you are a ‘repeat offender’ you should not expect HMRC to be patient.

Depending on the asset position of your company, HMRC may apply for a walking possession order. This means that they can essentially enter your business premises and remove any of the company’s assets that they deem to be of value.

If they do not believe this is the most cost-effective recovery measure, they will issue a Statutory Demand, followed by a Winding-Up Petition and recover debts through liquidation. In severe cases, they can even make directors personally liable for company debts.

Unfortunately, HMRC is unlikely to offer you a payment plan. Even with expert representation, it can still be extremely difficult to negotiate with HMRC, and even harder to reach a settlement. Regardless of the recovery measures used, the message is the same here, failure to pay HMRC will have very serious consequences for you and your company.

HMRC As a Preferential Creditor

In an insolvency situation, there is a formal hierarchy that dictates the order that creditors are paid. Legislation was introduced in 2020 that moved HMRC high up in this hierarchy.

If your company is already in liquidation, this will not have much impact on you as the impact on directors is the same regardless. However, if you want to enter into a CVA in a bid to rescue your business, you may struggle to do so. This is due to HMRC now having more voting rights when it comes to any CVA agreement.

Unfortunately, this means that company liquidations, both voluntary and compulsory are likely to become more common in situations where HMRC debts are left unpaid.

So, are there any options?

When it comes to HMRC, your best option is always to try and pay what you owe. We know this is not always possible so, are there any alternatives? Unfortunately, the answer in many cases is no.

HMRC often will not engage in negotiations and even if they do, a short-term payment plan may be your best option. Whatever you chose to do, negotiating with HMRC is not a ‘DIY’ job. They are a difficult and complex creditor and expert representation is needed to deal with them accordingly.

In many cases, alternatives such as restructuring, liquidation or informal agreements may be your best option. Even if it looks like your situation has no resolution, there are always options available.

If you are unable to pay HMRC or are facing recovery action, get in touch to speak to one of our business debt specialists. You can call us on 0333 305 4331, join our live chat below or request a call-back.