46% increase in HMRC’s attempts to shut down businesses that have fallen behind on their tax

New data from Mazars, the international audit, tax, and advisory firm, shows that HMRC tried to shut down 440 companies last quarter over unpaid tax debts – a 46% increase from the 301 that it tried to close the previous quarter*.

If a creditor is owed money by a company, they can use a “winding up petition” in an attempt to gain repayment from that business’ liquidated assets.

Michael Pallott, Partner at Mazars says that the number of winding-up petitions can be expected to rise as HMRC increasingly abandons pandemic-era forbearance and returns to more normal levels of debt enforcement activity. HMRC is coming under pressure to collect more of the tax it is owed. The tax authority was recently criticised by the Commons public accounts committee for failing to collect an estimated £42 billion in unpaid tax.

HMRC had been prevented from issuing winding-up petitions by the Government’s moratorium on winding-up petitions enacted during the pandemic. However, this moratorium was relaxed in October 2021 and lifted in March 2022, allowing HMRC and other creditors to pursue businesses who owe them money.

Michael Pallott, Partner at Mazars says: “HMRC is becoming increasingly assertive in pursuing businesses behind on their taxes. After a lengthy period of forbearance, HMRC has is now returning to enforcement measures in earnest.

“The Government had restricted the use of winding up petitions during the pandemic to protect businesses from the unexpected shock to normal business operations.

“Now that restrictions have been lifted on the use of winding up petitions, HMRC is actively chasing the money it is owed.”

HMRC’s increased enforcement activity is likely to come at the worst possible time as businesses struggle to cope with mounting debt costs, inflationary pressures and a fall in consumer spending.

Michael Pallott says: ““HMRC understandably needs to recoup money which the taxpayer is owed. However, given the negative economic outlook going into 2023, the increase in winding up petitions from HMRC is likely to see more businesses forced to close their doors.”

Michael Pallott adds that HMRC is willing to negotiate with businesses who have a genuine reason for being behind with their payments and wish to negotiate in good faith but early communication is vital. Under certain circumstances, businesses can apply to the tax authority for Time to Pay arrangements, giving them an extended period in which to pay back their debts. HMRC currently has 823,000 Time to Pay arrangements in place**.

Says Michael Pallott: “Time to Pay arrangements allow struggling businesses more time to pay off their debts and can avoid the need for a winding-up petition. Any business that is falling behind with its tax payments should engage with HMRC as soon as possible and should also consider seeking specialist advice from an Insolvency Practitioner.”

HMRC increasingly asked for businesses behind on their tax payments to be closed in 2022

*Between Q3 and Q4 2022
** HMRC, Quarterly Performance Report, July-September (Q2 2022-2023)