HMRC business closures ‘too aggressive’, warns Funding Options

The small business marketplace said the customs body should expand its late payments scheme due to ‘tough’ UK and global trading conditions.

HMRC applied to shut down 4,160 businesses that fell behind on their tax payments last year, amid smaller firms squeezed between a slowing economy and late payment from larger companies.

However, this “high number” of applications shows that the government’s tax and customs department is “too aggressive in its approach to shutting down businesses”, said small business marketplace Funding Options.

HMRC should take a more “sympathetic approach” to firms who owe tax, allowing them more time to pay, said the platform, which has studied the amount of winding up petitions issued by the tax body in 2018.

The London-based marketplace, which arranges over £100m of funding to small firms a year, acknowledges that HMRC applied to wind up 11.5 per cent fewer firms last year than in 2017, but argues that these figures are still to high.#

Tough trading

The platform argues firms face “tough trading conditions caused by Brexit uncertainty and slowing global economic growth”.

In February, the Bank of England forecast growth of 1.2 per cent this year, down from its previous forecast of 1.7 per cent made in November, blaming slower-than-expected growth in the eurozone and China, as well as stalled business investment amid Britain’s prolonged departure from the European Union.

Funding Options chief executive Conrad Ford (pictured) said: “HMRC continues to take a hard-line approach despite businesses facing tough economic headwinds. While HMRC has eased back from last year when they tried to shut down 4,700 businesses, it should be looking to give them even more leeway.”

The platform said “a key reason behind some businesses not being able to meet their tax payments on time is late payments by larger clients”.

It called for the HMRC to make greater use of its Time to Pay scheme, which “allows taxpayers to spread overdue tax payments over longer periods, which was used to tide small businesses through the last recession”.

Tax avoidance

The platform said small businesses should look at ways to improve their cashflow management to avoid facing HMRC sanctions.

However, the tax body said in a February note it is battling management attempts to “avoid an income tax charge on distributions when winding up a company”.

HMRC said it was keen to stamp out ‘phoenixism’, a practice where company bosses attempt to take cash out of a firm being wound up as capital gains, rather than as higher-rated income tax, only to restart a similar business at a newly-formed company.