If your business is in debt to any of its creditors, burying your head in the sand is the worst thing you can do. Failure to tackle your debts effectively can lead to more severe financial consequences like insolvency, so you must explore suitable debt repayment methods to place your business on the path towards recovery.
A Company Voluntary Arrangement (CVA) is one such method available to businesses in financial distress. This type of formal agreement offers a way for you to repay your creditors over time while remaining operational; however, when HMRC is one of those creditors, businesses often wonder “Will HMRC accept a CVA?”.
The Answer
With many falling behind on VAT, PAYE and Corporation Tax, HMRC is one of the most common creditors for businesses in the UK. Despite this, some confusion lingers concerning whether methods like a CVA are appropriate when in debt to HMRC, or whether they have to be treated differently to other preferential creditors.
In short, HMRC is generally willing to consider accepting a CVA as long as the proposal is reasonable and demonstrates that the business can meet its repayment obligations. Though HMRC can be more cautious and thorough in its assessment compared to other creditors, it will accept CVAs in instances where the repayment terms are fair and achievable.
Advantages Of Using A CVA If In Debt To HMRC
For a CVA to be accepted by HMRC, your business must present a clear and realistic repayment plan, backed by solid financial projections and compelling evidence to support the argument that your company can generate the necessary funds to meet its obligations.
Providing your business can put forward the argument for a CVA in this way, doing so can provide several benefits to those in debt to HMRC:
Avoidance of Liquidation
One of the key advantages of a CVA is that it may help your business to avoid liquidation. By agreeing to a structured repayment plan, you can continue trading while making manageable payments towards your tax debts. HMRC’s willingness to accept a CVA therefore offers a bit of a lifeline should recovery be the goal as opposed to winding up.
Legal Protection
Once a CVA proposal is put forward and accepted, creditors, including HMRC, are legally bound by the arrangement. This means HMRC must stop pursuing the debt through legal means, such as issuing winding-up petitions or other enforcement actions, giving your business breathing room to focus on recovery and turnaround.
More Time To Repay Debt
A CVA provides a more flexible repayment plan than other methods of addressing debt where you may need to cough up large sums quickly. Rather than paying the full debt upfront or within a short period, the CVA will include a payment schedule which spreads repayments over an agreed timeframe – usually up to five years – to help balance obligations with operations.
When Will HMRC Oppose A CVA?
It is important to note that HMRC will not automatically accept a CVA – it is subject to their careful scrutiny to ensure that it provides them with a fair return.
HMRC may reject a CVA proposal if any of the following factors are present:
- Unrealistic payment terms – including payment amounts which are too low or timescales which are not feasible.
- Lack of a clear plan for financial recovery.
- Inadequate contributions to HMRC – such as a proposal which HMRC views to be offering too small a portion of the debt compared to what is owed.
- Evidence of previous wrongdoing – including evidence that your business has failed to recognise HMRC’s preferential creditor status.
Other Ways To Tackle Debt With HMRC
Should any of the above examples apply to your business or you do not believe a CVA is the best solution in your circumstances, it’s important not to panic in this case. There are other options to consider to repay your HMRC debts, including:
Time To Pay Arrangements
A Time To Pay arrangement allows businesses that owe money to HMRC to settle their debts in instalments over an agreed period. These arrangements provide immediate relief, giving time to catch up on payments without facing aggressive enforcement actions. However, HMRC will still require that you demonstrate your ability to meet the instalments over time.
While a Time To Pay arrangement may sound similar to a CVA, it is generally more suitable for businesses that expect to recover quickly enough to pay off the debt within a short period (usually up to 12 months).
Liquidation
If your reasoning for ruling out a CVA goes in the other direction – you cannot afford to make repayments even over a longer term – you will need to move on to considering other formal processes. In cases where the business is unable to recover and debt levels are unmanageable, liquidation may be the best option. While this process does result in the company’s closure, it can offer a structured way to settle outstanding debts, including any to HMRC.
You should always aim to explore the possibility of Creditors Voluntary Liquidation (CVL) as opposed to waiting for HMRC to enforce compulsory liquidation via a winding-up petition, as this helps to show compliance as a company director and should result in more favourable outcomes for all parties involved.
Tackle Your HMRC Debts With Ballard Business Recovery
When in debt to HMRC, you must explore all of the available options to avoid more severe consequences. A CVA can be a powerful tool for restructuring debt, and while HMRC is often more stringent than other creditors, they are not opposed to reasonable CVA proposals. If a CVA isn’t a viable option, you can still explore alternative options to place your business on the best path towards recovery and/or settling its debts.
Whatever route you choose, seeking professional advice early can ensure you make the best decision for your business’s future. The business rescue experts here at Ballard Business Recovery are always on hand to give you this advice when you need it, whether that’s through an exploration of a CVA or other options. Get in touch with us today to discuss your situation and get on top of your debts to HMRC.