UK Building Contractor Suffering Due To Large HMRC Debt

The Challenge

A construction company with a turnover of approximately £215,000 was facing financial difficulties due to a single, but significant, issue: a large, historic debt to HMRC. The company was small, employing only two staff, including the director, and had no secured creditors or personal guarantees. Despite a relatively simple business structure, the debt of £30,000—with a massive 92% of it owed to HMRC—had become unmanageable. This situation put the company’s future at risk, as HMRC had the power to issue a winding-up petition, which would end the business and leave creditors with a far lower return. The director needed a structured way to address this debt while continuing to operate the business.

The Solution

In August 2017, the director contacted KSA and, after a meeting at his home, appointed the firm to assist with a Company Voluntary Arrangement (CVA). The CVA was the core of a strategic plan to save the business. The director had already taken proactive steps to get the company on a healthier financial footing by cutting overheads, launching an online marketing campaign, improving SEO, and tightening management information controls. The CVA proposal was designed to reflect this. The director agreed to repay a small overdrawn loan account over the first 12 months of the CVA, with those funds becoming additional contributions for the benefit of creditors. The CVA proposed to repay unsecured creditors 58 pence in the £1 over five years.

The Results

The CVA was successfully accepted by the body of creditors. HMRC, which held the vast majority of the debt, approved the CVA with some standard modifications, assuring its passage. The CVA’s approval was a significant success as it provided a legal framework for the company to manage its substantial tax debt while continuing to trade. It saved the jobs of both employees, including the director, and provided a clear path to recovery without the need for redundancies. This case demonstrates that even a small company with a simple problem—a single large creditor—can use a CVA to effectively resolve a crisis. The CVA provided the company with the stability and breathing room it needed to implement its turnaround plan and achieve long-term profitability.