Can I close a company with HMRC debts?

Shaun Barton

Shaun Barton | Company Closure Expert

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Can I close a company with HMRC debts?

HMRC has more authority to recover monies owed to them than other business creditors. If your company has HMRC debts it’s crucial to act quickly, therefore, as they could forcibly close it down using a winding-up petition if they believe it’s insolvent.

Their powers of debt enforcement leave your business at considerable risk, but you may be able to negotiate a short-term instalment plan to repay your arrears. The HMRC Time to Pay (TTP) scheme allows eligible businesses to bring their tax affairs back into line, typically over three months or more.

Depending on your situation and whether your company has other debts, it may provide a way to make your business solvent again before closing it down. You’ll need to support your application for a Time to Pay arrangement with cash flow and sales forecasts that demonstrate that you can afford to repay for the full term, however.

Can you voluntarily dissolve a company with HMRC arrears?

Voluntary dissolution via the strike off process is a common method of closing down a company but it isn’t suitable if there are creditors. It may be tempting to use this method, particularly as it’s inexpensive, but HMRC will file an objection that will ultimately make matters worse.

They’ll view your attempt to close the business as deliberate tax avoidance and are likely to file a winding-up petition to forcibly liquidate your company. This would trigger a stringent investigation into how you’ve run the company in the past, and could potentially leave you personally liable for the business’s debts.

So what is the best option to close your company if it has HMRC debts?

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Creditors’ Voluntary Liquidation (CVL)

The safest route to company closure if you have HMRC debts is Creditors’ Voluntary Liquidation, or CVL. This is a statutory procedure that safeguards creditors from further financial loss and protects you and other directors from allegations of wrongdoing.

If your business enters insolvency, by law you must prioritise your creditors’ interests – failing to do so can lead to disqualification and personal liability. So what does CVL involve and how could it benefit you as a director?

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How does CVL work when there are tax debts?

Creditors’ Voluntary Liquidation writes off any company debts that remain after the business assets are sold and the funds distributed. It provides a safe way for you to close your company when you owe HMRC, and complies fully with UK insolvency laws.

A licensed insolvency practitioner is appointed to wind up the company’s affairs according to statutory requirements. Although an investigation does take place during CVL, as long as no misconduct is uncovered, there’s little threat of personal liability or director disqualification.

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How to fund Creditors’ Voluntary Liquidation when you have HMRC debts

The CVL process attracts professional fees, but by following this route you may be eligible to claim redundancy pay as a director. If you or other directors cannot afford to pay for the CVL yourselves, you could use your redundancy payout.

To be eligible for director redundancy you need to have worked under a contract of employment for at least two years and for a minimum of 16 hours per week. You may also become eligible for other statutory entitlements in the same way as your employees.

Professional advice on closing a company with HMRC debts

HMRC is typically one of the largest creditors in cases of corporate insolvency. They can worsen your situation very quickly when you owe them money, which is why obtaining professional advice is crucial if you’re in this position.

The tax body is known to be forceful when recovering tax debt as they view themselves as involuntary creditors and can quickly close a business down using a winding-up petition. HMRC are also secondary preferential creditors for tax debts collected and held on their behalf by businesses, such as PAYE and VAT.

Company Closure can help you navigate this potentially serious situation – we’re company closure experts with vast experience in helping businesses with HMRC debts to close down safely. Please get in touch with one of the team to find out more – we offer free, same-day consultations and operate a nationwide network of offices.

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