How far back can HMRC chase unpaid business taxes?
According to Section 37 of the Limitation Act 1980, there is no time limit for HMRC to pursue a tax debt once it begins an enquiry. However, the key phrase is ‘once it begins an enquiry’. If HMRC does not contact you within six years of the creation of the tax debt, it ordinarily loses the right to pursue you for the repayment.
However, there are some exceptions to this rule. In the case of fraud or deliberate misreporting, HMRC has up to 20 years to investigate and enforce repayment. That doesn’t mean HMRC can look into your past 20 years of tax returns without good reason. It must have genuine cause to suspect wrongdoing before initiating an investigation.
Once an investigation begins, HMRC can reclassify the severity of the case based on its findings. If it uncovers evidence that suggests you or someone else in the company was taking deliberate steps to avoid tax, they can then look back further.
What counts as acknowledgement?
As we’ve said, HMRC generally has a six-year window to contact you about a debt and begin an enquiry. Once HMRC contacts you about a tax liability and you acknowledge the debt, the six-year deadline restarts. From that point, even if it launches an investigation and then closes the case, it can reopen the case indefinitely if new information comes to light.
There are various ways of acknowledging an HMRC debt. For example, making a partial payment, contacting HMRC to negotiate a payment plan or even disputing it are all ways of acknowledging that a debt exists.
How does HMRC chase unpaid company tax debt?
If you do not file a return or pay a tax bill when it’s due, there’s a structured process HMRC will typically take to recover the amount.
Initial communication
The first you’re likely to hear from HMRC will be a reminder to file your return or pay the outstanding amount. That will usually be in the form of a letter or email explaining when to make the payment to avoid further penalties.
A formal payment demand
If you ignore the initial contact, you’re then likely to receive a more formal payment demand informing you that late payment charges and interest are being applied.
You may also receive a notice of enforcement explaining that HMRC will take action if you do not make the payment within a specific timeframe and outlining the enforcement procedure it will use.
Enforcement action
HMRC can act on the enforcement notice if you do not settle your arrears within seven days. That will usually involve a bailiff or HMRC enforcement officer attending your premises to seize and sell assets to cover the cost of the debt. HMRC usually uses third-party bailiffs from a debt collection agency.
Court action
If enforcement action does not successfully recover the unpaid debt, HMRC can issue a Statutory Demand or apply for a County Court Judgment against your business. Unpaid CCJs and Statutory Demands will negatively impact the company’s credit rating and make it difficult to access future borrowing.
Insolvency proceedings
Once it has issued a company with a Statutory Demand, HMRC can then initiate insolvency proceedings by serving the company with a Winding Up Petition to force it into liquidation. The court will schedule a hearing to determine whether to grant a Winding Up Order.
If the court makes a Winding Up Order, it’s very difficult to prevent the Compulsory Liquidation of your company. The court will appoint a liquidator to sell the company’s assets and repay its creditors, including HMRC, as far as possible before closing the business.
Can HMRC pursue debts when a company is dissolved?
Some directors consider dissolving their companies to avoid paying their arrears, but voluntary dissolution is not an effective way to avoid unpaid HMRC tax debts. Firstly, dissolution is only a suitable closure method for companies that have settled all their debts.
As part of the process, you must inform your creditors within seven days of submitting your striking off application. Your creditors, including HMRC, can then object to the dissolution. At that point, Companies House will suspend the process and investigate the reasons for the objection. If it upholds the objection, the dissolution will not be allowed to proceed until you have paid HMRC what you owe.
Even if you do successfully dissolve a company with outstanding tax debts, HMRC has the power to restore the company to the Companies House register for up to six years after the date of dissolution. That extends to 20 years in cases involving fraud or negligence.
Once Companies House has restored your company, HMRC can take enforcement action to recover the debt. Your actions may also be investigated, and you could become personally liable for the company's debts or be disqualified as a director if you acted improperly or negligently.
Can I write off company tax debt?
HMRC always takes swift action to claim what is due to them. However, if you are unable to pay an outstanding tax bill, there are options available to either reduce or write off some or all of the liability.
Make a Time to Pay Arrangement
If you cannot pay a tax bill in full, you may be able to negotiate a payment plan, known as an HMRC Time to Pay Arrangement, to give you more time to pay what you owe.
A Time to Pay Arrangement gives you a typical period of between three and 12 months to pay what you owe via monthly instalments. Although none of the debt is written off, it can make the debt more manageable and improve your cash flow.
Company Voluntary Arrangement (CVA)
If you have HMRC debts and other creditors that you are unable to pay in full, you may be able to enter into a Company Voluntary Arrangement. A CVA is a formal insolvency procedure, so you will need to work with an Insolvency Practitioner to put one in place.
A CVA typically gives you three to five years to repay your debts via monthly instalments, and crucially, any debt that remains unpaid at the end of the arrangement is written off. To enter into a CVA, your company must be financially viable and a majority of your creditors must agree to your proposals.
Creditors’ Voluntary Liquidation (CVL)
If your company has tax debts it cannot pay and it’s no longer financially viable, liquidating it voluntarily via a Creditors’ Voluntary Liquidation could be the best option.
You must appoint an Insolvency Practitioner to administer the liquidation on your behalf. They will sell company assets to repay HMRC and other creditors as much as possible. There is a strict hierarchy for creditor repayment, and HMRC is relatively low on the pecking order. That means it may have to accept a reduced payment or even nothing at all. In that case, any tax debts that the company cannot pay will be written off.
Can I be made personally liable for HMRC debt?
A limited company and its owners are separate legal entities, which means the owners are not usually personally liable for debts the company cannot pay, including its tax arrears. However, there are some circumstances where that may change, including:
- The failure to pay tax is the result of fraud or neglect
- You continue trading an insolvent company and worsen the position of creditors, including HMRC
- You try to dissolve the company to avoid paying your tax liabilities
- You pay other creditors ahead of HMRC when the company is insolvent or nearing insolvency
- You have a joint and several liability notice from HMRC because you ran previous companies that failed with outstanding tax arrears
Worried about HMRC chasing an unpaid tax debt?
A hefty tax bill that you cannot pay in full does not need to spell the end of your business, but hoping HMRC does not chase an unpaid company tax debt is not a realistic strategy.
At UK Liquidators, we will assess your circumstances and guide you on the best route to save your business, whether that’s a Time to Pay Arrangement, CVA or alternative funding. If that’s not possible, we can liquidate your business on your behalf while protecting your position as a company director. Please get in touch for a free, same-day consultation or arrange a meeting at one of our offices throughout the UK.
