Can HMRC liquidate a company?

If your company owes money to HMRC and they present a winding up petition at court, the company will be liquidated if a winding up order is granted. HMRC commonly use winding up petitions as a method of debt recovery when they believe a business with tax arrears has insurmountable financial problems.

This is why, if your business is in financial distress and you can’t meet your tax obligations, you should take the initiative and contact HMRC as soon as possible to arrange more time to pay. 

What is an HMRC Time to Pay arrangement?

The HMRC Time to Pay scheme, or TTP, spreads repayments over several months – in some cases up to 12 months – and gives you a valuable breathing space from the threat of liquidation.

HMRC may be more inclined to arrange a TTP if you’re proactive, however, and let them know your company’s financial situation as soon as you know you won’t be able to make a payment. It’s important to note that you can pay tax arrears via a Time to Pay arrangement, but you still need to keep up with your current tax liabilities.

Other HMRC debt recovery methods

If a Time to Pay arrangement breaks down because you can’t keep up the payments, HMRC may decide to try to liquidate your company, but they can also use the power of distraint, which means they would seize business goods to the value of the debt.

If the worst scenario does occur and HMRC try to liquidate your company via a winding up petition, what happens next, and is there anything you can do to prevent a winding up order being granted?

How does HMRC liquidate a company?

If your company owes a debt of £750 or more, a creditor can petition the court to have your business wound up and liquidated. HMRC commonly take this course of action when they believe directors of a debtor business are deliberately avoiding payment, or that the company is insolvent.

HMRC has the power to present a winding up petition without issuing a Statutory Demand or County Court Judgment (CCJ), however, so this process can happen very quickly. Once the petition has been made, you must not sell or otherwise dispose of company assets, as you could face serious repercussions if it’s later liquidated.

When a winding up order is granted by the court, the Official Receiver (OR) administers the liquidation process and undertakes an investigation into the actions of directors leading up to insolvency.

What can you do to avoid HMRC liquidation?

Acting quickly and proactively can be your best defence against liquidation by HMRC. This means developing a business case for acceptance onto the Time to Pay scheme, and presenting reliable facts and figures during the application process.

If you believe the debt has been incorrectly stated by HMRC, you can also dispute the winding up petition. Professional guidance is crucial when you believe HMRC may try to liquidate your company, and taking early advice is highly recommended.

You may be able to formally renegotiate your debts under a Company Voluntary Arrangement (CVA), but if liquidation is unavoidable, a Creditors’ Voluntary Liquidation process is preferable to being forcibly wound up.

UK Liquidators has extensive experience of helping directors voluntarily liquidate their companies, and can provide trustworthy independent advice if you fear compulsory liquidation by HMRC.

Our partner-led team will arrange a same-day consultation free-of-charge, to quickly establish your company’s situation and the best way to proceed. We operate a broad network of offices around the UK, so you’re never far away from confidential professional guidance.