Businesses that fall behind with their tax could eventually find HMRC taking monthly payments directly from their bank accounts under new government proposals.
HMRC is considering introducing an automated system to recover lower-value tax debts from businesses and individuals who repeatedly fail to engage with it. For businesses, debts of up to £10,000 could potentially be recovered through monthly deductions made directly from a bank or building society account.
The proposals are still being developed, but they underline an important message: ignoring a tax debt is likely to become increasingly difficult.
Why is HMRC proposing the change?
HMRC says that each year more than 750,000 lower-value debts, worth over £2 billion collectively, are returned by debt collection agencies because attempts to recover them have been unsuccessful.
Existing enforcement methods can be expensive or impractical for relatively small debts. A new system would allow HMRC to collect affordable monthly instalments automatically after its normal attempts to contact the taxpayer had been exhausted.
Businesses would be given a final opportunity to pay or contact HMRC before the process began.
Could it create a cash-flow problem?
This is where the proposals could become particularly significant for SMEs.
Even when a business has money in its account, that does not necessarily mean the cash is spare. It may already be earmarked for payroll, suppliers, rent or other commitments.
The Institute of Chartered Accountants in England and Wales (ICAEW) has called for strong safeguards. Among its concerns is the possibility of HMRC records incorrectly showing debts that have already been paid or otherwise resolved, as well as ensuring monthly deductions are genuinely affordable.
ICAEW has also recommended that businesses should have clear rights to object and adequate notice before any money is taken.
The key message: don’t ignore HMRC
For SME owners, perhaps the most important point is that the proposed powers are aimed specifically at taxpayers who persistently fail to engage.
If you can’t pay a tax bill when it falls due, contacting HMRC early can provide considerably more options. Time to Pay arrangements allow qualifying businesses to spread their liabilities over an agreed period. HMRC reports that around 90% of these arrangements are successfully completed.
Don’t forget though that careful tax and cash-flow planning can help identify potential problems before a payment deadline arrives.
If you’re concerned about an outstanding tax liability, or want to make sure future tax bills are properly factored into your business cash flow, speak to our friendly team. We can help you understand your position and consider the most appropriate next steps before a manageable tax issue becomes a much bigger problem.