Business Tax Returns – What’s the Real Story?

Whilst many of us gladly welcome the summer season, for many small and medium enterprises (“SMEs”) across England, this time of year does not necessarily bring the same sense of appeal.

31 July 2015 – doomsday or just another date for the diary?

Friday 31 July 2015 marked the deadline for SMEs paying self-assessment tax to have filed their returns for the year. Accordingly an up-front payment for 50% of their annual tax liability was required in a one-off, lump sum.

Payment of this tax is notoriously problematic for many enterprises across the country. In fact, it is not unheard of for an SME to be entirely oblivious of the requirement to make this payment at all.

This is a worrying thought, particularly when the payment can be in the region of hundreds of thousands of pounds. Furthermore, if an enterprise has failed to account for the payment in their cash flow plan for the year, valuable funds due to be invested elsewhere may be ‘lost’ to tax resulting in severe cash flow problems and further debt. This can understandably have a hugely detrimental effect on how a business runs over the forthcoming 12 months.

The Statistics

To encourage awareness of the impending payment deadline, figures were released by HMRC in early July 2015 outlining general statistics from the previous year. The data confirmed that during 2014 alone, HMRC had sought to close down 3,000 businesses. Out of these, it had been ‘successful’ in closing 1,887 – a 4% increase from 2013.

These figures provided a significant warning to SMEs – pay your taxes or we will be obliged to take action against you. This includes raiding premises and seizing assets.

As Conrad Ford, CEO of Funding Options states, “Businesses need to be aware that HMRC is much less forgiving of payment problems than it was a few years ago” and these statistics certainly reflect this.

How can these issues be avoided?

If an SME finds itself unable to make the required payment to HMRC, is there any help out there?

The answer is yes. As soon as it becomes apparent that there is no way of obtaining the necessary funds, the first step should be to immediately contact HMRC.

As Stephen Hobson, Insolvency Practitioner at Francis Clark Chartered Accountants explains, “HMRC are so used to being ignored, sidelined or left to the back of the payment queue that an honest phone call . . . saying “sorry, I’m going to struggle to meet this deadline” may seem like a breath of fresher air”.

Interestingly, HMRC themselves acknowledge the possibility of assisting where businesses are unable to pay tax on time with the HMRC website noting that options are available, including paying monies by instalments or applying for an extension of time to pay. It is truly the case that the sooner the issue is dealt with, the better the situation regarding payment will be in the long run.

Failure to ask for help

It is therefore fundamental that HMRC are contacted as soon as possible. The concept that ‘ignorance is bliss’ is one that should be avoided and the responsibility to ensure this attitude is avoid lies firmly with the directors of the SME; alongside their other key obligation to avoid the company being wound up, without running the risk of committing an offence or incurring personal liability.

According to section 172(3) of the Companies Act 2006, where a company is insolvent, or on the verge of insolvency, the directors owe a duty to the company to act in the best interests of the creditors of the company. Realistically, as soon as a director can see that the company is in financial difficulty, they should seek external advice from a specialist. Failure to take the appropriate steps may result in a director being held to have committed an offence, as well as seeing their reputation and ability to continue in a directorship role called into question.

It is possible that a disqualification order may be made by the court against a director of a company that becomes insolvent, if his/her conduct as makes him/her unfit to be concerned in the management of a company (section 6, Directors Disqualification Act 1986).

Directors must therefore be careful as it is certainly arguable that failure to meet a tax deadline may be deemed as such inappropriate behaviour to result in disqualification. It is imperative that a director is aware of his/her responsibilities at all times.


When the ability to co-operate with HMRC and plan an alternative course of action is accessible, it is perhaps difficult to see how so many businesses have been wound up by HMRC in its role as a creditor, as a result of failing to submit tax return payments. Put simply, it is vital that SMEs do not simply hide their heads in the sand, both for the immediate sake of the cash flow and the long term sake of the business itself and the people behind it.

If the financial difficulties are more than just a temporary cash flow issue, or HMRC is taking a stronger view it is absolutely imperative you seek professional advice. The Insolvency Act 1986 provides a number of mechanism to help SMEs through financial difficulties. With the right, prompt advice a difficulty need not turn into another HMRC statistic. Just as important, the right advice can help protect your position, as director against disqualification or other proceedings.

Here at Kitsons, we have a wide range of Insolvency Practitioner contacts, any of whom would be more than willing to have an initial chat about options should your business be in financial difficulty. Speak to Andrew Pay on 01392 455972 for further information on a no obligation/strictly confidential basis.

Because, as Conrad Ford states, it really is true that, “every small business needs to be aware of exactly what its options are when it needs funding” if to survive in the business world in 2015.

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    About the author

    Jayme NicholsonPartner and Head of Employment

    Jayme is a Partner and Head of our Employment team

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