Case Study - Prepayment Restrictions Due To HMRC Arrears

Making cost savings for clients is not always the primary objective with a case. We were recently involved with a customer who has experienced a reduction in their prepayment percentage, from their factoring company. This had been implemented as they had tax arrears outstanding to HMRC.

HMRC Arrears

In cases where there are HMRC arrears, it is common for factors to start to restrict funding as they fear that HMRC may take action and the client could be wound up. In such situations they factor would have to collect in the sales ledger, to recoup their funding, and the step of reducing the funding level is intended to make that process more robust.

We found our client an alternative provider that were able to take a slightly different tack. On the basis that they client negotiated a repayment schedule with HMRC, they were happy to revert to the higher funding percentage. This step effectively negates the concerns about having to collect out, as the repayment plan has been authorised by HMRC. The factor then only needs to monitor progress to ensure that they client sticks to the repayment plan.

The negotiation of the repayment schedule with HMRC was stipulated as a pre-condition in the offer to our client. This means that they have to satisfy that condition prior to being able to draw down the funding.

Cost Savings

In addition to securing this reinstatement of the funding percentage, the new funders also offered a £50,000 top up facility (against other security). This additional funding was to enable our client to pay their suppliers on pro-forma. Additionally, the newly introduced factoring company provided our client with a 34% reduction in the level of fees that they were paying for their recourse factoring arrangement, delivering a substantial cost saving of more than a third.

Further Resources

Article - Help Paying HMRC Tax Arrears

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