A Manchester construction company approached Business Helpline after accumulating more than £150,000 in HMRC arrears, around £70,000 owed to suppliers and an outstanding Bounce Back Loan.
With HMRC enforcement escalating and the business no longer recovering financially, the director needed to understand whether the company could be rescued or whether liquidation was now the appropriate option.
📋 Case Study Snapshot
Sector: Commercial Construction
Employees: 8
HMRC Debt: £150,000+
Supplier Debt: £70,000
Immediate Pressure: HMRC enforcement and threatened winding-up action
Outcome: Creditors’ Voluntary Liquidation
The Situation
James was the sole director of a Manchester-based construction company employing eight full-time members of staff.
The company specialised in commercial building projects and had grown steadily before the Covid-19 pandemic.
When projects were delayed or cancelled, the business used government support to maintain cash flow, including VAT deferrals, furlough support and a £50,000 Bounce Back Loan.
Trading conditions remained difficult after the construction sector reopened. Rising material costs, delayed customer payments and persistent cash-flow pressure meant the company never fully recovered.
By late 2023, the position had deteriorated significantly.
|
Liability |
Approximate position |
|
HMRC arrears |
£150,000+ |
|
Supplier debts |
£70,000 |
|
Bounce Back Loan |
£50,000 originally borrowed |
|
Employees |
8 |
The HMRC liabilities included VAT, PAYE and Corporation Tax.
After receiving HMRC enforcement correspondence and facing the threat of a winding-up petition, James contacted Business Helpline.
What Was the Director Worried About?
Like many directors facing company insolvency, James was concerned about what would happen personally if the business failed.
His main questions were:
- Would he become personally liable for the HMRC debt?
- Could he be disqualified as a director?
- What would happen to his employees?
- What would happen to the Bounce Back Loan?
- Could HMRC force the company into liquidation?
These are important questions because company insolvency and personal liability are not the same thing.
A limited company’s debts do not normally become the director’s personal debts simply because the business enters liquidation. Personal exposure can arise in particular circumstances, including personal guarantees, overdrawn director’s loan accounts or misconduct.
On the facts reviewed in this case, no misconduct was identified that caused the company’s ordinary HMRC and supplier debts to become James’s personal liabilities.
Why Was a Creditors' Voluntary Liquidation Chosen?
The company’s financial position and creditor pressure were reviewed before a closure route was recommended.
Strike off was not appropriate because the business had substantial unpaid creditors and active HMRC enforcement.
The company had also reached the point where continuing to trade did not provide a realistic route out of its existing liabilities.
A Creditors’ Voluntary Liquidation was therefore recommended.
A CVL would:
- place the company into a formal insolvency process;
- bring trading to an orderly end;
- place control of the company with a licensed insolvency practitioner;
- allow creditors to submit claims in the liquidation;
- deal formally with employees and company assets; and
- avoid simply waiting for a creditor such as HMRC to pursue compulsory liquidation.
James was referred to a licensed insolvency practitioner and the CVL process began.
What Happened to the HMRC and Supplier Debts?
HMRC and the company’s suppliers became creditors in the liquidation.
The insolvency practitioner was responsible for identifying company assets, dealing with creditor claims and distributing available funds according to the statutory order of priority.
The unpaid liabilities did not automatically transfer to James personally.
This distinction is particularly important for directors who fear that owing HMRC money means HMRC can automatically pursue their house or personal savings.
That is not normally how limited-company liability works, although separate personal liability can arise in specific circumstances.
If your company is struggling with tax arrears but has not yet reached this stage, see our wider guide to HMRC tax debt.
What Happened to the Bounce Back Loan?
The outstanding Bounce Back Loan remained a liability of the company and formed part of the creditor position dealt with through the CVL.
It did not become James’s personal debt simply because the company was liquidated.
However, Bounce Back Loans can be investigated during insolvency, particularly where there are questions around eligibility, use of funds or director conduct.
No issue resulting in personal liability was identified in this case.
What Happened to the Employees?
The company’s employees were made redundant as part of the closure.
Eligible employees were able to make claims through the Redundancy Payments Service for statutory amounts they were owed.
Depending on eligibility, employees of an insolvent company can potentially claim for amounts including:
- statutory redundancy pay;
- unpaid wages;
- holiday pay; and
- statutory notice pay.
Claims are subject to statutory rules and limits.
What Happened to the Employees?
- Acting early is crucial – once HMRC starts legal action, options reduce rapidly
- Directors are rarely held personally liable if they act properly
- A CVL protects staff, creditors, and directors when used responsibly
What Happened to the Director?
No director disqualification arose from the circumstances identified in this case.
James had sought advice once the seriousness of the company’s position became clear and cooperated with the insolvency process.
He subsequently moved into employment as a site manager with another local construction business.
Entering a CVL does not automatically prevent somebody from being a company director again. However, the conduct of directors is reviewed as part of the insolvency process and action can be taken where misconduct is identified.
Why Is HMRC Debt a Particular Risk for Construction Companies?
Construction remains the UK sector experiencing the largest number of company insolvencies.
In the 12 months to July 2026, 3,841 construction companies entered insolvency in England and Wales, representing around 17% of insolvencies where an industry was recorded.
Construction businesses can face unusually severe cash-flow pressure because they often have to fund:
- labour;
- materials;
- subcontractors;
- plant and equipment;
- VAT;
- PAYE; and
- other taxes
before receiving full payment for completed work.
Long payment chains, retentions and delayed valuations can make this particularly difficult.
Construction companies operating as contractors can also have obligations under the Construction Industry Scheme (CIS). CIS deductions owed to HMRC can have a particular status in formal insolvency alongside certain VAT and PAYE debts.
CIS arrears were not stated as part of this particular company’s HMRC debt, but they are an important additional risk for many construction businesses.
The Outcome
The CVL allowed the company’s affairs to be dealt with through a formal insolvency process rather than leaving the director to face increasing creditor pressure.
The key outcomes were:
- HMRC and suppliers submitted their claims in the liquidation;
- employees were able to pursue statutory claims;
- the outstanding Bounce Back Loan remained within the company’s creditor position;
- no personal liability for the company’s ordinary debts arose for James on the facts reviewed;
- no director disqualification arose; and
- James was able to move into new employment.
What Can Other Construction Directors Learn From This Case?
The biggest lesson is not to wait until HMRC takes control of the situation.
If your construction company is struggling:
- Work out the true HMRC position. Include VAT, PAYE, Corporation Tax and CIS where relevant.
- Prepare a realistic cash-flow forecast. Do not rely solely on overdue customer payments eventually arriving.
- Assess whether the company can genuinely recover.
- Speak to HMRC early if a sustainable Time to Pay arrangement may be possible.
- Take insolvency advice before enforcement reaches winding-up stage if the debts cannot realistically be repaid.
Seeking advice does not automatically mean putting the company into liquidation. The objective should be to establish whether the business can be rescued and, if it cannot, choose the appropriate closure route before the position deteriorates further.
Is Your Construction Company Struggling With HMRC Debt?
If VAT, PAYE, Corporation Tax or CIS arrears are increasing, getting advice early can preserve more options.
Business Helpline provides free, confidential and unbiased initial advice to directors of UK limited companies facing financial difficulty.
We can help you understand whether the company has a realistic rescue option or whether a formal insolvency procedure needs to be considered.
Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.
Frequently Asked Questions
Can HMRC liquidate a construction company for unpaid tax?
HMRC can ultimately present a winding-up petition where the relevant legal requirements are satisfied. Directors should seek advice before enforcement reaches this stage.
Is a director personally liable for a construction company's HMRC debt?
Not automatically. Limited-company debts normally belong to the company, although personal liability can arise in specific circumstances such as guarantees, director loan accounts, misconduct or particular statutory provisions.
What happens to CIS debt when a construction company goes into liquidation?
Certain CIS deductions owed to HMRC can rank as secondary preferential debts in formal insolvency, alongside specified VAT, PAYE Income Tax and employee National Insurance liabilities.
What happens to employees in a construction company CVL?
Eligible employees may be able to claim statutory redundancy and certain unpaid employment entitlements through the Redundancy Payments Service.
Can a construction company with HMRC debt be rescued?
Potentially. Depending on the company’s underlying viability and ability to repay its liabilities, options may include HMRC Time to Pay, a CVA or Administration. Where recovery is no longer realistic, CVL may be appropriate.
