HMRC offers lifeline to struggling firms

UK businesses that owe money to the government have been reassured that enforcing insolvency for repayment of the debt will be a “last resort” as the country emerges from the pandemic.

Many firms have a backlog of taxes that will become due, including VAT.

HMRC has the status of “preferential creditor” when company insolvencies involve unpaid VAT and income tax. This means it is paid first in the event of a corporate failure.

But business leaders want the government to ensure this is used to help struggling companies restructure their finances to survive, rather than to shut them down.

Business Secretary Kwasi Kwarteng said in a letter to business groups this week that HMRC will take a “cautious approach to enforcement of debt owed to government” which has been accrued during this period.

The letter to the Institute of Directors and insolvency trade body R3, first reported by the Financial Times, added that enforcement of debt repayment was more likely to take place when companies failed to engage with HMRC rather than simply because they could not afford to pay.

“A flexible approach will be taken with those companies who engage with HMRC, with a view to bringing their debt into a managed arrangement,” Kwarteng explained.