31% increase in the number of businesses HMRC tried to shut down for falling behind on tax

HMRC applied to shut down 4,761 businesses because of unpaid tax debts last year*, a 31% increase from 3,625 the previous year, as the tax authority steps up efforts to recover billions in outstanding tax liabilities, says the national accountancy group UHY Hacker Young.

Data shows HMRC is owed £42.8 billion in tax debt that is in arrears** and has been given additional resources in the last two budgets to tackle the problem. HMRC aims to recruit a further 2,400 debt management officers by 2029/30***.

HMRC has been using winding up petitions as a tool to chase unpaid tax debt. A ‘winding up petition’ is one of the most serious debt recovery tools available to creditors. If successful, it can force a company into liquidation, with its assets sold to repay outstanding debts.

2,397 of HMRC’s winding up petitions were progressed in the last year to became “winding up orders”, a 27% increase from 1,886 the year before. A winding up order is the final stage of the process and means a company is forced into liquidation by the courts, with its assets sold to repay creditors.

Peter Kubik, Partner at UHY Hacker Young, says: “HMRC is increasingly using winding up petitions and the threat of liquidation as a debt collection tool.”

"It should serve as a warning to directors that tax debts are being taken more seriously than ever by HMRC as they try to reduce the mountain in unpaid tax.”

Struggling businesses urged to engage with HMRC at earliest opportunity

Many businesses continue to face challenging trading conditions, including rising employment costs, higher borrowing costs and higher taxes (eg NIC). These pressures have made it harder for some businesses to meet their tax obligations.

Businesses experiencing temporary cash flow difficulties may be able to agree a Time to Pay arrangement with HMRC that will prevent their business being shut down. These agreements allow tax liabilities to be paid over an extended period rather than in a single lump sum.

Peter Kubik says: “The key point for businesses which are struggling to meet their tax obligations is to not ignore the problem. HMRC is often willing to discuss payment options where companies engage early and are transparent about their circumstances.”

“A winding up petition is usually the result of a business failing to engage with HMRC rather than an inability to pay immediately. In many cases there is still an opportunity to negotiate a payment plan before matters escalate to formal insolvency proceedings.”

“Any business that is struggling to meet its tax obligations should contact HMRC as soon as possible and seek professional advice. Acting early can significantly improve the chances of reaching an agreement and avoiding enforcement action.”