Facing Problems With HMRC debts? Don’t Wait Until It’s Too Late!
Every day you delay could increase your risks of legal action, penalties, or even personal liability. Get confidential advice on the best way to close your company safely.
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Options for Closing Your Company with HMRC Debts
Directors have two primary options when closing a company with HMRC debts: a Creditors’ Voluntary Liquidation (CVL) or facing a compulsory liquidation, often initiated by a winding-up petition from creditors, including HMRC.
Choosing a CVL allows more control over the process and can demonstrate a responsible approach to dealing with company debts.
What Does It Mean to Close a Limited Company?
Closing a limited company, or ‘winding up,’ means ceasing all business operations and removing the company from the Companies House register.
However, this process isn’t as straightforward when the company has debts, particularly to HMRC.
Whether the closure is voluntary or forced by creditors, understanding the distinctions and legal implications is crucial for directors to navigate the process effectively and minimise personal liabilities.
Financial Penalties and Interest: HMRC charges penalties for late or non-payment of VAT. The penalty rates vary depending on the delay and can significantly increase the total debt. Interest is also charged on the unpaid amount, compounding the issue.
Personal Liability for Directors: Directors can be held personally liable for HMRC debt in certain cases, such as when there is evidence of fraud or wrongful trading.
Impact on Business Operations: HMRC debt can strain business finances, affecting operations, employee morale, and stakeholder confidence.
- Send Warning Letters: Initially, HMRC will issue letters reminding the business of its outstanding debt.
- Distraint and Asset Seizure: HMRC can seize business assets to sell them off and recover the debt.
- County Court Judgments (CCJs): HMRC may obtain a court order to enforce payment.
- Winding-Up Petitions: In extreme cases, HMRC can apply to the courts to wind up the business to liquidate assets.
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Common FAQs
What happens if i am unable to pay the VAT the company owes?
What occurs if my company cannot meet its VAT obligations? In situations where occasional delays in payment are a possibility, it’s important to address the issue proactively. However, if you recognize that your company’s financial position won’t allow for settling VAT arrears and maintaining tax compliance in the foreseeable future, it becomes necessary to establish a formal plan.
HMRC permits companies to resolve their tax arrears by implementing a series of monthly installments, provided they believe the company has a realistic chance of repaying the debt within a reasonable timeframe. This arrangement, known as a Time to Pay (TTP) agreement, typically has a maximum duration of 12 months. HMRC often prefers shorter-term TTPs, usually spanning 3 to 6 months.
Persistent failure to meet your VAT obligations can result in more severe measures, such as distraint or the potential issuance of a Winding Up Petition against your company. While HMRC is open to dialogue with businesses facing difficulties in meeting tax requirements, they won’t hesitate to take substantial action against companies that refuse to engage or are unwilling to seek a viable resolution.
What are my options if i cannot pay VAT?
In the event that your company faces challenges in meeting its VAT obligations, there are several avenues for assistance. HMRC is committed to supporting businesses grappling with VAT or other tax liabilities.
They may consider implementing a Time to Pay (TTP) arrangement to facilitate the repayment of outstanding amounts.
Alternatively, if your VAT arrears are only one aspect of your company’s overall unmanageable debt, it may be more suitable to explore formal insolvency solutions. Check If You Qualify Online
My accountant calculated my VAT incorrectly - Do i still owe this?
Is my accountant’s miscalculation of my VAT return sufficient reason to avoid payment? Even if you’ve entrusted your company’s financial and tax matters to an accountant, it’s important to remember that, as the director, you bear ultimate responsibility for the accuracy of any submitted accounts or returns.
Therefore, if your accountant’s error results in a substantial VAT bill to rectify previous underpayments or mistakes, it remains your obligation to ensure payment. An accounting mistake doesn’t serve as a valid justification for neglecting or delaying the settlement of your outstanding VAT liability.
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