Tax Small Business Advice

HMRC applied to close up over 4,000 businesses in 2018

1 Mar 2019

According to new data, HMRC applied to shut down 4,160 businesses in 2018, as a result of the companies having “fallen behind” on their tax payments in the previous year.

As an accountant that’s both highly experienced and skilled in tax planning and advice, our team are in the perfect position to help your business optimise its tax position and keep your affairs in order so you can avoid the likes of fines or worse - forced closure - from HMRC.

Get in touch to discuss how our team can provide bespoke planning and consultancy for your business, or try our instant quote tool and get a competitive fee in just 5 clicks.

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Hard-line HMRC demands organisation from businesses

The high number of applications to shut businesses is an eye opener for other businesses in the UK. Given the tough trading conditions caused by Brexit uncertainty and slowing economic growth, some businesses could lose sight of tax compliance.

The above figures certainly serve as a reminder that HMRC continues to take a hard-line approach, despite businesses facing tough economic headwinds.

While HMRC has eased back from last year, when they tried to shut down 4,700 businesses, 2018’s figures still represent a very significant group deemed fit for closure by the taxman.

Businesses must have a plan in place

HMRC will close businesses if they think that’s the best way to get the money they are owed, so business owners must have an action plan ready.

One could argue for HMRC to be more sympathetic to smaller businesses that are struggling, instead of immediately applying for the liquidation of these SMEs. However, it’d be a much more worthwhile use of a business owner’s time to focus on a solid tax plan that won’t just benefit the business in the short term, but make life a lot easier in the long term, too.

Could HMRC revert back to recession-time procedures?

In the event of HMRC softening its stance for small businesses, there may be an option from times gone by to make life easier for business owners.

One example of this is the “Time to Pay” scheme. Popular during the last recession as SMEs navigated their way through a tricky period, the scheme gave taxpayers the ability to spread their overdue tax payments over longer periods of time.

Why are HMRC applying to close businesses?

Winding up petitions are used by HMRC to shut down a business that has not been able to pay its tax bills on time. Once wound up, HMRC is able to liquidate a business’ assets, which it can then sell on to cover the overdue tax owed by said business.

Why are some businesses failing to pay their tax?

All things being equal, small businesses would be paid in good time by their clients, meaning that they have less trouble meeting their tax obligations.

Unfortunately - as has been a prominent thread of stories in the media since Carillion’s collapse last year - one of the key reasons why some businesses are not able to immediately meet their tax payments on time is due to late incoming payments from their larger clients.

With tax bills such as VAT and corporation tax, the taxpayer is billed on the money invoiced, rather than the overall money received.

This is where having a robust and reliable cash flow forecast plays a significant role in the business.

If a business is able to identify the finance options available to them as early as possible, it is less likely to run into HMRC-related difficulties if they do arise.

Of course businesses should be paid on time, all the time. But, this is not always the case, so businesses must be prepared and know how they are going to manage their finances through the tricky periods.

It is important that SMEs consistently update and improve their cash flow management to help avoid HMRC’s sanctions, as HMRC has the power to both ban company directors and seize business assets.

Are you having cash flow trouble, or think you need an expertly devised cash flow forecast? Our MBA-qualified business consultant is an expert in forecasting so you always have a clear view of what lies ahead for your business and how your performance can be improved as a result.

Get in touch to discuss how we can create a tailored cash flow forecast for your business.