Dissolving a company with HMRC tax debts
Dissolution is only appropriate for solvent, debt-free corporations; if you dissolve a company with tax arrears, HMRC can pursue the payment for up to six years from the date of dissolution. They can request to restore the firm on the Companies House registry and probe its activities, including director behaviour.
What happens when a company is dissolved with tax liability?
When a company is dissolved, its name is removed from Companies House’s registry and no longer exists as a legal entity, but it can be restored to the register under certain conditions. The dissolution procedure is often done when a firm is no longer necessary, has never traded, or a sole director is about to retire but must be carefully managed to avoid unpaid tax issues.
Dissolution is an affordable closing option for small businesses or companies, but it is only appropriate for those who are solvent. So, if the company had tax bills before being dissolved, HMRC may still pursue proceedings to reclaim the money owed.
The dissolution procedure requires that all creditors be advised of the directors’ desire to dissolve their firm voluntarily. It is extremely unlikely that an application would go unanswered if tax debts were outstanding.
If an application was approved, and the business was dissolved despite owing money to HMRC, the tax authority might petition to have it reinstated on the register. So, how do firms get restored in this fashion, and what are the repercussions for company directors regarding their unpaid obligations?
Can HMRC chase a dissolved company with tax debts?
HMRC can pursue a dissolved business for up to six years from the date of dissolution; but, if they suspect fraud occurred or that the directors were irresponsible in some manner, they can pursue it for up to 20 years.
Their first step would be to ask for the company’s reinstatement. This is done through the courts, and if successful, the business name is reinstated on the Companies House registry. The firm is then regarded as if it had not been dissolved.
Following restoration to the register, HMRC would conduct a thorough inquiry into the company’s business and the actions of its directors, particularly focusing on any unpaid tax.
What is involved in an HMRC investigation into company debts?
HMRC conducts thorough investigations to recoup tax losses, particularly if they suspect directors intentionally intended to avoid payment by dissolving their company and leaving behind outstanding debts.
What factors can HMRC investigate?
After a firm is reinstated on the register, an investigation will be started to find any possible irregularities or questionable transactions, including: –
- Preferential payments – directors might have utilised available business cash to compensate other creditors without paying HMRC on a proportionate basis.
- Breach of director fiduciary responsibility (often known as misfeasance)—a director may have acted in their interests rather than that of the business’s creditors after they were aware the firm was bankrupt.
- Fraudulent behaviour – for example, purposely increasing creditors’ financial losses or intentionally putting shareholders in a stronger position before the company’s dissolution.
The investigation’s findings place firm directors at considerable personal risk of fines and financial punishment if this sort of misbehaviour is established.
Can a company director become personally liable for company tax debts?
Under normal circumstances, company directors are shielded by the ‘veil of incorporation‘, which creates a separate legal entity from the directors and provides substantial protection through limited liability.
If HMRC determines that illegal or fraudulent conduct occurred, firm directors may face personal accountability for any or all of the outstanding tax arrears. HMRC is also likely to assess interest and penalties on the debt from the date of dissolution. HMRC can sue directors personally for payment, putting their house and other assets at risk.
The risks of attempting to dissolve a corporation that owes money to HMRC are significant, and there is a better way to go.
Considering company dissolution?
Company dissolution is a low-cost closing alternative, but it is only acceptable in certain situations, namely when no obligations, including outstanding debts, are remaining. Creditors’ Voluntary Liquidation, or CVL, is the process used if a company’s obligations (including those owed to HMRC) cannot be repaid.
Directors may be able to claim statutory redundancy compensation in this way, which might cover professional expenses while reducing the likelihood of misconduct allegations.
Ways McLaren Insolvency Practitioners Can Help
Liquidation of Companies (CVL)
Creditors’ Voluntary Liquidation (CVL) is a statutory procedure to Wind Up a Company. Failure to do so can expose corporate directors to claims of malfeasance.
A licenced insolvency practitioner (IP) is appointed administer proceedings and realise the company’s assets including any remaining leases. The realisations are held for the benefit of creditors. CVL reduces the risk of improper trading claims while also allowing employees and directors access to receive statutory redundancy pay.
Liquidation of Solvent Companies (MVL)
Another type of liquidation, known as Members’ Voluntary Liquidation (MVL), may be appropriate for closing solvent companies if director or shareholder wishes to transition into a different business or is nearing retirement.
MVL may be a viable alternative if the company has cash of £25,000 or greater to distribute, as funds taken are liable to Capital Gains Tax (CGT).
Seeking professional advice to begin the process of dissolving your company
If your company is dealing with debt, call us immediately for experienced guidance and personalised solutions to overcome financial obstacles.
Our team of licenced insolvency practitioners are available to assist you with your company’s financial difficulties.
Contact us to gain from our extensive expertise in dealing with corporate debt difficulties.
We recognise that each company’s financial challenges are unique, therefore we provide bespoke solutions suited to your exact requirements.
With our assistance, you may develop a clear financial recovery and stability plan.
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