HMRC to Go Easy on Small Businesses with Covid Debt

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HMRC to Go Easy on Small Businesses with Covid Debt

The business secretary, Kwasi Kwarteng, has commented that HMRC should not press businesses to pay overdue taxes if they’re struggling due to coronavirus-related reasons.

Small businesses struggling with Covid debt will not be forced to pay overdue tax to HMRC straight away, according to business secretary Kwasi Kwarteng.

Previously, HMRC had positioned itself to be the first to be paid out in the case of any businesses going bust post-covid. The pressure to pay tax collectors can be extremely unpleasant for the owners and directors of small businesses.

But Kwasi Kwarteng has informed the Institute of Directors and business group R3, a community of insolvency and restructuring professionals, that HMRC plans to go easy on businesses that are struggling to pay taxes due to covid-related reasons.

The government is trying to avoid a tsunami of insolvencies this summer.

This news will be a relief for many small businesses, that have already suffered thanks to the stop-start nature of reopening post-lockdown and will need to start paying back Covid financial support, such as Bounce Back Loans.

Many insolvency practitioners have warned the government that small businesses will struggle to stay in operation from July when the Covid financial support starts to wind down.

The Financial Times has obtained a letter from Mr. Kwarteng, which reports that HMRC will shortly be updating its policy in regards to tax enforcement, to help companies with outstanding depts pay in managed arrangements.

According to the Financial Times, the business secretary added that he recognised the “path back to full trading will be difficult for many companies, particularly those with accrued debt and low cash reserves”, also commenting that using insolvency to enforce payment “will remain a last resort”.

The director of policy at the IoD, Roger Barker, has informed the newspaper that if this approach was implemented, “it would represent a significant shift in the way that HMRC deals with insolvency — a much less punitive approach than companies have experienced in the past”.

However, Kwarteng has said a return to normal processes “with the right controls, coupled with a cross-government approach to its continued support and enforcement, will be vital to a return to a healthy and functioning economy”.

The 21st of June was the deadline for businesses to join the VAT deferral payment scheme, which means businesses can pay tax in eight monthly installments.

HMRC has told the Daily Telegraph: “HMRC only pursues insolvency action as a last resort after considering all alternative routes to recovery of a debt, and of all insolvency proceedings that go ahead, only around 10pc of them are petitioned by HMRC".

“Protecting livelihoods 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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