According to online business finances supermarket, Funding Options, applications from HMRC to wind down businesses to recover unpaid tax increased by 12% in 2016. The amount of applications hit 3,906, up from 3,485 in 2015. Though not all applications were successful, 2,065 were last year, an increase from 1,944 in 2015.

If HMRC manages to get a winding up order from a court regarding a business, that business is forced to close and have its assets liquidated in order to pay the outstanding tax bills.

HMRC has faced continual public and political pressure to recover unpaid taxes from businesses. Most of HMRC’s uncollected tax is from smaller businesses, though larger corporations are usually under more public scrutiny due to the amount of tax they often manage to avoid.

CEO of Funding Options, Conrad Ford said: “Shutting a company down is the biggest weapon in HMRC’s arsenal, but it’s one the taxman is using more and more. HMRC faces a difficult balancing act of whether it should aggressively shut down businesses.

“In these extreme circumstances, companies may have some difficult choices to make between paying employees or suppliers and paying their tax bill.”

Alternative funding

Funding Options said that SMEs are most likely to be caught out with unpaid tax due to having less access to loans and overdrafts that might help with cash flow problems.

“It’s vital that businesses don’t stick their heads in the sand: SMEs need to try to work with HMRC to prevent arrears backing up. They should also take pro-active steps to make sure they have a funding safety net readily available for when they need it,” Ford said.

They suggest that businesses should consider alternative options to gather funding well ahead of a tax payment if they are struggling so that they are not shut down completely by HMRC. While they are aware that banks are usually reluctant to provide funding to cover tax bills, they suggest that businesses look at the likes of asset finance, invoice finance, crowdfunding and peer-to-peer lending.

“The good news is that identifying the right source of funding is becoming easier thanks to the government’s Bank Referral Scheme, which provides access to alternative finance for firms unable to obtain traditional loans.

“As one of three platforms selected to field referrals under this scheme, at Funding Options we are seeing businesses becoming increasingly open to the potential benefits of options such as securing lending against the value of assets or unpaid invoices, P2P lending or crowdfunding,” Ford added.

Have you ever been issued with a winding down order? What advice would you give other small businesses struggling to meet their tax payments? Let us know your thoughts in the comments.

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About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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