Top 7 HMRC Letters That Give Business Owners Nightmares (And The Potential Consequences)

9th Apr 2021
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Some HMRC letters are unnerving to say the least, and clients will likely come to you for advice first. Here we look at some of the common ones.

It’s crucial to act quickly

Running a business is a juggling act and there are never enough hours in the day. But those who don’t keep up with their tax and legal responsibilities will soon end up on the wrong side of HMRC - and things can get expensive fast.

If your client has received correspondence from HMRC that calls for action, it’s their trusted accountant they’re likely to turn to first. Here we look at the common letters they really don’t want to get, and what action they should take.

Letter #1: Overdue VAT payment

Companies go insolvent for many reasons - but failure to pay VAT is the most common one. Clients who are struggling to pay their VAT must take urgent action and there are a number of things they can do. Encourage them to speak to an Insolvency practitioner as soon as they receive one of these letters, and take steps to pay their VAT which may involve a payment plan.

Letter #2: Overdue Corporation Tax

Although the current rate of Corporation Tax in the UK is 19%, it’s set to jump to 25% in April 2023. With many companies struggling in the wake of the COVID-19 pandemic, overdue Corporation Tax letters are something you may across increasingly often.

If your client is unable to pay their Corporation Tax bill then they’re technically insolvent and again need to consult a licensed insolvency practitioner. It may however again be possible to make arrangements with HMRC to pay the amount due over a longer timeframe.

Letter #3: Final Proof of Debt

A company owner can expect to receive a Final Proof of Debt letter if their business is facing administration or liquidation. Creditors that are owed money then need to make an application to recoup their losses to the liquidator/administrator. If the creditor’s claim is accepted, a Final Proof of Debt letter will be sent out.

Letter #4: Notice Warning of Enforcement by Distraint

Your client can expect to receive this letter if they have an active tax debt that hasn’t been paid for a long time. HMRC is within its rights to seize company goods and sell them to settle the outstanding debts.

If your client has come to you having received an HMRC Notice Warning of Enforcement by Distraint, they need to act fast. This is because they only have seven days before bailiffs will show up to take away assets. The letter itself will tell them what to do next.

Letter #5: Receivables Management Debt Collection/Distraint Levy

If bailiffs turn up to a business property and the business owner is not present, they will then send out an HMRC Receivables Management Debt Collection/Distraint Levy letter. The letter explains that they will try again in the near future unless the tax debt is settled in full immediately. Again, it may be possible to negotiate with HMRC and pay the outstanding amount over a longer time period.

Letter #6: Controlled Goods Agreement (also called a “Walking Possession Agreement”)

This letter will be received when a tax debt is long overdue, and an enforcement officer or bailiff has arrived at the company property to seize assets. Goods will be identified that can be sold, although some may be left at the premises until HMRC gives consent for their removal.

In the meantime, this letter indicates that it’s a criminal offence to sell or dispose of the goods without the consent of HMRC. If the letter isn’t signed by the business owner then good can be removed straight away.

Letter #7: R&D Tax Credit Query

This is a big one. The previous ones have been about tax debt payment but this is about tax relief payment. When HMRC get in touch with a company about their R&D Tax Credits claim, it usually means the inspector has some additional questions. Hopefully whatever they want to know will be straight-forward to answer and the claim can be progressed (albeit slightly delayed). But if HMRC has already posed questions that it doesn’t feel have been answered satisfactorily, it may take steps to launch an investigation into the company’s wider tax affairs. It can look back not only at R&D Tax Credits claims but wider tax affairs over many years - stressful, annoying and potentially expensive.

If your client has received a letter or any other communication from HMRC regarding their R&D tax relief claim then it needs dealing with promptly. It may simply be because they’ve tried to DIY a claim which hasn’t hit the spot, or they’ve used an R&D advisor that hasn’t got the right level of knowledge or experience. It could even be that a previous accountant they used made an honest mistake (see our blog: Easy Mistakes That Accountancy Firms Make Regarding R&D Tax Credits).

At this point it’s strongly recommended you contact a firm of R&D tax specialists like Myriad Associates (the team behind the Tax Cloud portal). We will be able to advise both yourself and your client about the next steps to take to ensure HMRC are satisfied. We’ll also work to help them avoid any further action such as an investigation, whilst ensuring their R&D Tax Credits application produces the tax relief they’re owed.

We recently wrote 5 Excellent Reasons To Work With An R&D Tax Relief Consultancy that explains why partnering with us on R&D Tax Credit claims is the best way forward.

Put an expert R&D Tax Credit claim together on your client’s behalf using the Tax Cloud portal

The Tax Cloud portal gives your firm the chance to expand your service to your clients by creating and submitting high-quality, watertight R&D Tax Credit claims for them. It’s simply a case of signing up and undertaking the free training, before following the step-by-step process of entering figures and technical information. Tax Cloud’s team of expert R&D advisors will check each stage before you carry on, and as it’s cloud-based you can access it from anywhere, any time. We’ll even manage the claim for you post-submission, and there’s a generous 30% revenue share fee to claim too.

If you prefer, you can sign your clients up directly with Tax Cloud instead and receive a 15% referral fee just for doing so.

Find out more about why accountants should use the Tax Cloud portal and get signed up today. Of course, you can also discuss your requirements with us by calling 0207 360 4437 or sending us a message.