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HM Revenue & Customs (HMRC)

HM Revenue & Customs (HMRC)

HMRC are one of the most likely creditors to force a company into compulsory liquidation through the courts if they are owed money.

am often asked what usually tips a business over the edge. If I asked you to guess the answer you might say it is the banks – a lot of business people think that. However that is just not the case. It is very rare that the bank loses patience and is the one to call in the administrators.

The usual creditor that exerts enough pressure that something has to happen is HMRC.

From their point of view they are not like a bank or trade supplier that can set a credit limit.

If a business avoids its VAT or PAYE it can run up a large debt very quickly. 

At least a bank has the protection of setting an overdraft limit and refusing to allow cheques to be cleared above that limit and a supplier can refuse to supply goods unless paid.

Once HM Revenue and Customs start a recovery process they might do one of two things:

They can send in a Court Enforcement Officer (bailiff) and distrain on assets (the equivalent of taking a legal charge)

Once they have done that there is not a lot you can do to release it apart from pay off all the debt owed. 

They don’t just let you pay off what the equipment is worth – they will want all arrears cleared. 

Usually a few days after taking that distraint if the debt has not been paid they come and remove the goods to be sold at auction. Sometimes you will see cars advertised in an auction stating it will be sold unless the debt is cleared.


The second action they can take is to start bankruptcy (on sole traders) or a winding up process (on limited companies or partnerships). 

Usually you can tell if HM Revenue and Customs are going to do that because they give you plenty of warning and they transfer your file to the specialist recoveries section in Worthing. 

Once they get to this stage it is pretty serious and they are trying to put you out of business to stop that debt you owe to them from increasing. It is the ultimate control they have on stopping you in your tracks. Any creditor owed over £750.00 can do this but it is only usually HM Revenue and Customs that are willing to spend the money.

The best thing you can do in the circumstances (assuming you cannot pay in full) is to not ignore them but to talk to them. They are not as hostile sometimes or as intimidating as you might think and on the whole just want to get their money back. As long as the offer to them is sensible then they will do a deal to take payment of arrears by instalments as long as you keep up to date on the rest of your VAT or taxes. 

If you have no hope of reaching a sensible agreement with them then I would suggest you look at a more formal insolvency answer to deal with the arrears. 

HM Revenue and Customs cannot legally write off debt unless you enter into company or individual voluntary arrangement (IVA) or you enter liquidation, bankruptcy or administration. In all of these cases you will need the services of a licensed insolvency practitioner like me to do one of these procedures.

David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
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