In its 2014 Budget, the Treasury announced that it would give HM Revenue & Customs (HMRC) power to recover taxes owed by corporate and individual debtors directly from their bank accounts. Issues relating to how these powers might and should be used in practice are being consulted on and considered by government but the rule changes bring into focus the importance for businesses of staying in the good graces of HMRC.

Here is our look at some key issues that can affect a company’s position with regard to debts owed as taxes:


Among the clearest hazards to businesses in the context of their efforts to avoid running up debts with HMRC is ‘overtrading’. The term refers to a positon in which a company finds its cash flows being notably squeezed at a particular point in time.

The issue of overtrading is a common one where an economy is expanding and a company is keen to take advantage of growth potential but struggles to see its financial incomings keep pace with outgoings.

Overtrading can easily become a problem for companies in any industry but particularly for those, such as manufacturers and exporters, who need to pay out relatively large sums of money upfront for raw materials in order to generate turnover and profits later down the line.

The basic problem under these circumstances is that a company can find itself being owed large amounts of money that they can’t access in time to settle outstanding debts with HMRC. And, as we now know, the new laws mean this could become a real problem with the Crown now able to recover these debts directly from bank accounts.

Accelerated payment notices

Another way in which a company can easily find itself owing and unable to pay significant amounts of debt to HMRC is by not being adequately prepared for accelerated payment notices. These notices can be issued by HMRC as demands for payment from companies that are involved in tax planning schemes that are deemed to have been created effectively for purposes of tax avoidance.

The powers to send out accelerated payment notices were given to HMRC by legislation brought in by the UK Parliament in July 2014. Where a company is believed to have saved money by avoiding taxes, HMRC now has the legal right to demand that the amounts saved should be paid in full within 90 days. The new laws also include scope for payment notices to be issued retrospectively and can leave business with more tax to pay that they had anticipated.

Communication is key

Effective communication between all relevant stakeholders, company directors and their financial advisers can make a crucial difference in the context of dealing with unpaid and initially unaffordable HMRC debts. There are a range of potential funding options available that can help companies and their directors tackle these kind of issues but, without the right approach, these problems can very easily get much worse before they get better.

The key reason why communication is so crucial under these circumstances is that arrangements can be made to see your tax arrears settled but the terms are generally much more easily established when HMRC is fully informed of your position from the outset. Leaving an unpaid tax bill for any length of time can make these issues far more difficult to deal with when the point is reached at which they can no longer be ignored.

Getting the right guidance

Prior to introducing its new ‘direct recovery of debt’ laws, the government projected that as many as 10,000 companies around the UK were likely to be impacted. If you are concerned by your company’s position with regard to its tax liabilities or its relationship with HMRC then we at Begbies Traynor have the expertise to help. We provide expertise and specialist guidance to company directors looking for an effective and sustainable ways of dealing with debts owed to HMRC.

It is often the case that problems with paying HMRC can be the result of more underlying financial issues that ought to be addressed as a matter of urgency.