Over half (54%) of insolvency practitioners believe that HMRC makes it harder to rescue businesses than wind them up, according to a survey of the insolvency profession by trade body R3.On top of that, nearly three-in-four (71%) insolvency practitioners say that HMRC has made the insolvency process harder to manage in the last few years, with only ten per cent saying the taxman was ‘helpful’ when it comes to business rescue.
And Neil Harrold, chair of R3 in the North East and a partner with Hay & Kilner Solicitors believes recently announced planned changes to HMRC, which will include the opening of a major new regional centre for the North East in Newcastle, represent a crucial opportunity for reform.
He says: “The government, as a creditor, can do much more to help promote a business rescue culture. At the moment, it can be responsible for lengthy paperwork delays, and creates extra costs for itself, the insolvency profession and other creditors, while its lack of commercial decision-making capabilities undermines business and job rescue proposals.
“The insolvency profession believes the government’s behaviour as a creditor makes it harder to manage insolvency processes and rescue businesses. It’s one of the creditors the insolvency profession looks forward to working with the least – which, given how often the government is a creditor in insolvencies, is a real problem.
“Like the rest of government, HMRC has to operate under tight budgetary constraints, and these can limit the time it can spend on a relatively small but highly technical and very important area such as insolvency.”
“The government has a great opportunity for reform with the recently announced planned changes to HMRC’s structure. The shift to a smaller number of centres gives HMRC the opportunity to create a specialist insolvency unit. A specialist unit would cut duplicate post, have more consistency in its decisions, be more accountable, and be far more efficient.”
HMRC estimates that it loses up to £4bn a year as a result of insolvent businesses and individuals being unable to pay tax bills, a figure which is equivalent to just over 10% of the total ‘tax gap’.
Neil Harrold continues: “The better the government gets at working with the insolvency profession when taxpayers’ become insolvent, the more chance it has of shrinking the tax gap – but it’s not only the government’s losses that are affected, it would be ordinary creditors’ too.
“Delays with post or paperwork and intransigence on business rescue hurt other creditors as well, and the more efficient the government becomes, the more money gets back to other creditors.
“The insolvency profession finds dealing with the government hit-and-miss. Insolvency practitioners are sometimes denied tax information to which they are entitled as an Office Holder. HMRC’s approach to approving voluntary arrangements changes depending on who the insolvency practitioner speaks to. Letters and forms can go unanswered, requiring follow-ups, while insolvency practitioners can wait months before HMRC responds to requests to wrap-up cases.”
The survey also found that:
· Insolvency practitioners estimate that 33% of the estimated 480,000 letters and forms they send to HMRC for a year’s worth of cases are duplicates of lost or ignored post, or are copies of letters that have to be sent to multiple HMRC addresses. This is the equivalent to approximately 160,000 excess forms and letters for a year’s worth of new cases.
· Over 54% of insolvency practitioners had to wait over three months for clearance from HMRC to close their last case; 25% waited between six months and a year.
· 50% of insolvency practitioners say that HMRC is one of the creditors they look forward to working with the least; 8% say the most.
· 49% of insolvency practitioners had to wait longer than 15 minutes the last time they called HMRC before their call was answered/cut off/they hung up; 25% waited over half an hour.
· 43% of insolvency practitioners have had requests for information from HMRC – to which they were entitled as Office Holders – rejected.