Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
When your business faces the reality of being unable to pay HMRC, it’s important to realise you have options available to you. Particularly in the period succeeding COVID-19, HMRC is offering increased flexibility to businesses in distress, provided you maintain good communication with them and don’t put your head in the sand.
If you’re company can’t pay HMRC, we recommend the following steps.
1. Document your financial situation: Begin by thoroughly reviewing your balance sheet. Identify exactly how much is owed, to whom, and why. Having this information at your fingertips will be useful whether you’re speaking with HMRC themselves, or a debt advisor to receive some advice.
2. Prioritise HMRC Debts: As the largest issuer of winding up petitions in the UK (a means to force your business into compulsory liquidation) HMRC debts should be prioritised.
3. Maintain Good Communication with HMRC: Reach out to HMRC at the earliest opportunity and explain what’s happening. HMRC offer a ‘Time to Pay’ arrangement, allowing you to spread the debt over manageable instalments. This approach demonstrates your willingness to settle the debt and can prevent the situation from escalating.
5. Seek Professional Advice: This is where Company Debt comes in. Our team of experienced insolvency practitioners can provide expert guidance if you feel your business is on the cusp of insolvency, or could benefit from a company rescue procedure such as a company voluntary arrangement.
What Happens If You Do Not Contact HMRC or Refuse to Pay
When chasing arrears, HM Revenue and Customs (HMRC) will initially attempt to reach you through various means, including letters, texts, and personal visits at your home or workplace.
Should these attempts fail and you are unable to agree on an instalment plan, HMRC may take further action to recover the owed taxes. These actions can include:
Directly deducting the owed money from your wages or any pension payments you receive.
Seizing and selling your possessions (applicable in England, Wales, or Northern Ireland).
Withdrawing funds directly from your bank or building society accounts (applicable in England, Wales, or Northern Ireland).
Taking legal action against you which could lead to court proceedings.
Declaring you bankrupt if the debt remains unpaid.
Closing down your company if the unpaid tax is related to business activities.
Before taking any of these actions, HMRC will notify you and provide information about your rights, the potential costs involved, and the options available to you. It’s crucial to respond to HMRC’s attempts to contact you to avoid these severe consequences.
Can HMRC Close My Business?
The short answer is yes, HMRC has the authority to close down a business that fails to meet its tax obligations.
However, such action is generally considered a last resort, following a series of steps aimed at recovering unpaid taxes. Understanding the process and knowing how to respond at each stage can significantly reduce the risk of your business being closed by HMRC.
When a business falls behind on its tax payments, HMRC will initially attempt to collect the debt through reminders and demands for payment. If these efforts are ignored, HMRC may escalate its enforcement actions, which can include:
Issuing a Distraint Order: This allows HMRC to seize company assets to recover the debt.
Applying for a County Court Judgment (CCJ): This formalises the debt in court and can impact the business’s credit rating.
Petitioning for Winding Up: As a final measure, HMRC can petition for the company to be wound up, effectively closing the business and using any assets to pay off the debt.
What’s the Best Way to Close a Business with HRMC Debt?
The best way to close a business with HMRC debt is typically through a Creditors’ Voluntary Liquidation (CVL). A CVL is a formal insolvency procedure that allows a company to close down voluntarily, with the help of a licensed insolvency practitioner acting as the liquidator.
It’s crucial to act quickly once the company becomes insolvent, as delaying action can worsen the situation and potentially lead to accusations of wrongful trading. Seeking professional advice from licensed insolvency practitioners such as ourselves at an early stage ensures the best possible outcome for all stakeholders.
Is It Possible to Write Off My Businesses HMRC Debt?
In situations where the debt is insurmountable and the business is insolvent, formal insolvency proceedings like Company Voluntary Arrangements (CVAs) or liquidation might lead to some debts being written off. A CVA, for example, is an agreement with creditors that allows a company to pay a proportion of its debts over time, with the remainder potentially written off if the CVA is successfully completed.
If a business goes into liquidation, its assets are sold to repay creditors as much as possible. In this scenario, HMRC, as a creditor, may receive only a portion of the owed taxes, or in some cases, none at all, effectively writing off the unpaid debt. However, liquidation means the end of the business, so it’s generally considered a last resort.
As a Director, Can I be Held Personally Liable for HMRC Debts?
While a limited company structure offers some protection for your business debts, HMRC has the power to pursue directors personally in certain situations.
One of the most significant risks is the issue of wrongful trading. If you continue to trade when you knew, or ought to have known, that the company was insolvent, you could be held personally liable for the company’s debts from that point forward. This means that if the company’s assets are insufficient to pay its debts, including tax liabilities, HMRC may seek to recover the outstanding amounts from your personal assets.
If HMRC suspects fraud or serious misconduct, they can also pursue you through the courts, seeking disqualification as a director or even criminal charges in extreme cases.
Help with HMRC Pressure from Company Debt
Facing HMRC pressure can be an incredibly stressful experience for any business, but you don’t have to navigate this challenge alone. Company Debt offers expert assistance and tailored solutions to help your business manage and potentially overcome HMRC debts.
Our team of experienced professionals understands the intricacies of tax laws and HMRC procedures, and we’re committed to providing practical advice and support tailored to your unique situation. Whether it’s negotiating Time to Pay arrangements, exploring insolvency options, or finding other viable solutions to reduce your tax liabilities, we’re here to help.
Don’t let HMRC pressure put the future of your business at risk. Contact Company Debt today for a confidential consultation, and take the first step towards regaining control of your financial situation.
FAQs
Can HMRC take my personal assets if my company owes taxes?
In most cases, HMRC cannot directly seize your personal assets to recover your company’s tax debts. However, if HMRC can prove that you have engaged in wrongful trading or misfeasance, they may pursue legal action against you personally. This could result in a court order requiring you to pay some or all of the company’s tax debts from your personal funds.
How long can HMRC chase a company for unpaid taxes?
HMRC can pursue a company for unpaid taxes for up to 6 years from the due date of the tax bill. However, in cases of deliberate tax evasion or fraud, this period can be extended up to 20 years.
