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HMRC taking ‘cautious approach’ to help prevent insolvencies

The UK government has said HMRC will take a “cautious approach” to enforcement of debt owed to the government accrued during the pandemic, according to the business secretary.

In a letter, seen by Credit Strategy, from Kwasi Kwarteng to industry bodies the Institute of Directors (IoD) and R3, he said: “HMRC enforcement during this critical period however, will be largely driven by a lack of engagement by companies with it, rather than just their inability to pay and that using insolvency to enforce payment will remain a last resort.”


It comes in response to a letter - reported by the Financial Times - sent by the IoD and R3 to Kwarteng in May, which said that the UK tax authority must work with companies struggling to repay debt built during the pandemic. In response to this, the government announced an extension of temporary insolvency measures, particularly the restrictions on company winding up petitions, for a further three months until the end of September this year.


In his letter, the business secretary also said both he and HMRC supports a request by the bodies that HMRC takes a “commercial view” to drive rescue and publicises its strategy to “encourage companies and insolvency practitioners to bring forward rescue procedures” such as company voluntary agreements and restructuring plans.


Alongside this, HMRC has published guidance for insolvency practitioners on the stance it will take on voluntary procedures, the information it needs to make decisions and the positive way it will engage.


R3 president and head of restructuring at Azets, Colin Haig told Credit Strategy the “intent” towards this more positive stance is “very welcome”.


He added: “HMRC has always had a critical role to play in supporting business rescue – but this has increased since it became a preferential creditor and since the pandemic began, so this news is positive for the UK’s business community and the insolvency and restructuring profession.


“We look forward to working with HMRC to see this aim become a reality – and urge any directors who are worried about their business, and in particular their tax debts, to seek advice from a qualified source as soon as possible so they have the broadest range of options open to them to resolve any financial issues they may be facing.”


Alongside this, Kwarteng’s letter states HMRC will be “building its resources to be able to respond to an increased number of rescue proposals in the near future”. The body will also support any taxpayer that may struggle to pay their outstanding tax, with these arrangements being agreed upon on a case-by-case basis.


Additionally, a spokesperson from HMRC told Credit Strategy the body “only pursues insolvency action as a last resort after considering all alternative routes to recovery of a debt”.

 

They added: “Protecting livelihoods and keeping people in work remains our priority, as it has been throughout the pandemic. We will always work constructively with customers to avoid the need for insolvency and will only take action if a customer does not respond or engage with us.”

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