Tax authority chases more UK companies over unpaid debts

British companies are being targeted with a sharp rise in winding up petitions as the country's tax authority chases unpaid debts.

HM Revenue & Customs applied to shut down 2,391 businesses in the year to Dec. 7 over unpaid tax debts, more than triple the attempts in the previous year, according to data compiled by accountancy firm UHY Hacker Young.

"The huge increase in petitions being issued by HMRC is a clear sign that the tax authority is chasing unpaid tax debts more aggressively," said Peter Kubik, a partner at the accountancy firm.

HMRC was restricted from lodging winding-up petitions until the end of March 2022 by measures designed to protect companies during COVID lockdowns. It lodges the winding up petitions, used by creditors who are owed money, in an effort to chase businesses who have fallen behind on their bills. A winding-up petition, which can lead to businesses being liquidated and their remaining assets distributed, can be resolved by paying the debt.

"What we are seeing is them being more proactive and that's definitely leading to more companies having to face up to their challenges," said Geoff Rowley, chief executive officer of FRP Advisory.

Liquidations

Monthly figures from the UK government on Dec. 15 showed an increase in compulsory liquidations, usually started by creditors taking action to collect debt. In July, the Insolvency Service, which tracks business failures, highlighted the increase in winding up petitions from HMRC.

Businesses have been under pressure from high energy costs, stubborn inflation and a cost-of-living crisis which has squeezed consumers. In some cases, businesses have prioritized other creditors instead of HMRC.

In its most recent performance update, for the three months between July and September, unpaid debts to HMRC had reached 37.7 billion pounds ($48 billion), up from 31.2 billion pounds two years ago.

"There's a huge amount of debt out there that should be collected," said Rowley.

Fashion and Football

Some companies have said HMRC is taking a more forceful stance to recovering money. The fashion brand the Vampires Wife said in the summer that its petition had come without warning. Football clubs Reading and Southend United have received winding up petitions, and later settled with HMRC.

"We are seeing a much more aggressive stance from HMRC in response to reasonable requests for time to pay," said Kate Nicholls, chief executive officer of the trade body UKHospitality. "We would urge them to not take precipitous action which might trigger problems in smaller independent companies in particular, when a little bit of common sense and pragmatism would help to get businesses through a short term squeeze that will undoubtedly improve."

A spokesperson for HMRC said it applied for winding up petitions only as a last resort, and that the numbers were returning to more usual levels after pandemic protections measures ended in March 2022. "We take a supportive approach to dealing with customers who have tax debts and only file winding up petitions once we've exhausted all other options, in order to protect taxpayers' money," the spokesperson said.