How HMRC Is Giving Struggling Businesses a Lifeline

bigstock-Tax-Calculator-Pen-And-Glasses-4930982-300x199It's all too easy for businesses to view HMRC as public enemy number one. It's normal to feel angry, and want to find someone to blame when a company goes under, but figures indicate that HMRC are actually very supportive towards ailing companies, and the majority of company closures are not caused by compulsory winding up orders.

A quick analysis of figures released by the Insolvency Service relating to the final quarter of 2012 indicate a steady drop in the number of companies forced under through compulsory liquidation.

Only 4,243 of the 16,138 liquidations were compulsory. The vast majority – 11,895 – came about as a result of a creditors' voluntary liquidation.

These figures reveal that last year compulsory liquidations were at their lowest level since the first year data was collected, 2003.

The Growth of Company Voluntary Arrangements

Although HMRC does appear to issue the vast majority of winding-up petitions in the UK, evidence suggests that they are often willing to give businesses the benefit of the doubt, and seek compromise in certain cases.

Instead of single-mindedly pursuing compulsory liquidations, as some people in business would have you believe, many troubled businesses are managing to save themselves by working with HMRC to negotiate a company voluntary arrangement.

Rather than pushing for liquidation, the taxman does seem to be willing to listen, and renegotiate payment terms in many cases. This can give companies with long-term viability the opportunity to save themselves from the threat of oblivion.

This situation is indicated in some figures that were released by HMRC in response to a freedom of information request. In 2010/11 financial year, 4,159 petitions were filed by HMRC across England, Wales, Scotland and Northern Ireland. Only 2,392 winding up orders were awarded over the same period.

These figures suggest a substantial percentage (42%) of the companies that got into serious debt problems with HMRC were able to escape a compulsory winding up order. This would appear to be due to a combination of petitions being refused by the courts, and an increase in the overall number of CVAs agreed, which has increased from 2001's level of 761 to 2012's 839.

Companies that are free from past transgressions are increasingly able to compromise and work with the taxman to create a better outcome for everyone.

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