Data shows HMRC is owed £42.8 billion in tax debt that is in arrears² and has been givenadditional resources in the last two budgets to tackle the problem. HMRC aims to recruita further 2,400 debt management officers by 2029/30³.

HMRC has been using winding up petitions as a tool to chase unpaid tax debt. A‘winding up petition’ is one of the most serious debt recovery tools available to creditors.If successful, it can force a company into liquidation, with its assets sold to repayoutstanding debts. 2,397 of HMRC’s winding up petitions were progressed in the last year to became“winding up orders”, a 27% increase from 1,886 the year before. A winding up order is thefinal stage of the process and means a company is forced into liquidation by the courts,with its assets sold to repay creditors.

Peter Kubik, Partner at UHY Hacker Young, says: “HMRC is increasingly using winding uppetitions and the threat of liquidation as a debt collection tool.”

“It should serve as a warning to directors that tax debts are being taken more seriouslythan ever by HMRC as they try to reduce the mountain in unpaid tax.”

Struggling businesses urged to engage with HMRC at earliest opportunity

Many businesses continue to face challenging trading conditions, including risingemployment costs, higher borrowing costs and higher taxes (eg NIC). These pressureshave made it harder for some businesses to meet their tax obligations.

Businesses experiencing temporary cash flow difficulties may be able to agree a Time toPay arrangement with HMRC that will prevent their business being shut down. Theseagreements allow tax liabilities to be paid over an extended period rather than in asingle lump sum.

Peter Kubik says: “The key point for businesses which are struggling to meet their taxobligations is to not ignore the problem. HMRC is often willing to discuss payment optionswhere companies engage early and are transparent about their circumstances.”

“A winding up petition is usually the result of a business failing to engage with HMRCrather than an inability to pay immediately. In many cases there is still an opportunity tonegotiate a payment plan before matters escalate to formal insolvency proceedings.”

“Any business that is struggling to meet its tax obligations should contact HMRC as soonas possible and seek professional advice. Acting early can significantly improve thechances of reaching an agreement and avoiding enforcement action.”