Recently, there has been a significant increase in company closures due to petitions from creditors, particularly HM Revenue & Customs (HMRC).

In 2023, forced closures rose by 63 per cent compared to 2022.

This spike is mainly due to high interest rates making Covid-era debts hard to manage, along with HMRC’s backlog of cases.

Many companies, called “zombie companies,” continue trading despite being unable to pay their bills.

Creditors, including suppliers, utility companies, banks, and HMRC, are pushing to liquidate these debtors to recover what they can.

As such, we believe businesses need to take proactive steps to manage their finances and deal with creditors effectively.

How businesses should handle themselves

To navigate the current challenges, we suggest you closely monitor your business’s financial health by regularly checking income and expenses.

You should also track all debts, especially those remaining from Covid, and prioritise paying off high-interest ones to reduce financial strain.

Maintain open communication with creditors, including HMRC. If you anticipate trouble paying bills, discuss extending payment deadlines or setting up easier repayment schedules.

Alternatively, you can contact HMRC to arrange a “time to pay” agreement for tax debts to manage repayments over an agreed period.

You may want to consider options like a Company Voluntary Agreement (CVA) to keep trading with creditors’ consent and look at other insolvency options, such as administration and voluntary liquidation, which might be better alternatives to a winding-up petition.

Paying debts on time helps you avoid becoming a zombie company and attracting HMRC’s attention.

Be aware of HMRC’s service delays and their impact on processing applications.

Keep detailed records of all communications to avoid misunderstandings and ensure a clear audit trail.

How an accountant can help

As accountants, we can offer expert advice on managing your finances, restructuring debt, and ensuring tax compliance.

We can also help set up “time to pay” arrangements with HMRC and negotiate with creditors, guide you on rescue tools like CVAs, and help you understand other insolvency options.

Given the economic situation and HMRC’s pressure, we are strongly suggesting that businesses work closely with their accountants on all aspects of their tax and finances.

To speak with a qualified and experienced accountant, please get in touch with our team.