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How to close a company with HMRC debts

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If you want to close your company but owe money to HMRC, you need to proceed very carefully. If you don’t follow the strict regulations surrounding company closure in the UK, it could lead to personal liability for yourself and other directors.

Additionally, HMRC hold strong powers of debt enforcement and generally take action quickly against debtor businesses. You also have a legal obligation to place the interests of creditors first, so what are your options when you want to close down a limited company with HMRC debts?

Our licensed insolvency practitioners at UK Liquidators have extensive experience of helping businesses close down and can provide the confidential, reliable guidance you need.

Closing a limited company with HMRC debts

When your business owes money that it can’t repay, it has entered insolvency. You must cease trading immediately and seek professional advice to prioritise creditor interests. A formal insolvency process called Creditors’ Voluntary Liquidation (CVL) is available that can protect you from allegations of misconduct, and also offers other benefits.

When you enter Creditors’ Voluntary Liquidation any debts that remain unpaid after the realisation of assets are written off, unless they’re secured debts or you’ve provided a personal guarantee to the lender.

The problem with HMRC debts

HMRC are commonly the largest creditor when a business experiences financial distress, and the tax body are known to take action quickly to recover their money. For this reason, it’s important not to delay, as they could rapidly force you into compulsory liquidation.

Being forcibly liquidated opens up the possibility of sanctions and financial penalties against you, as the liquidator carries out robust investigations when companies are forced to liquidate by a creditor.   

So what would happen if you tried to close down a company with HMRC debts via voluntary strike off – another common method of business closure.

HMRC debts and company dissolution

The voluntary strike off route isn’t appropriate for companies in debt. If you try to strike off your company at Companies House, HMRC will make a formal objection as a creditor of the business.

They’ll also note that you’ve tried to avoid repaying your company’s tax arrears, and you could face serious repercussions as a director following investigation by the Insolvency Service.

This might include being disqualified as a director for up to 15 years, as well as potentially being held personally liable for company debts. So what are the benefits of using the CVL route to close down when you owe money to HMRC?

Benefits of a CVL when have HMRC debts

Here are just a few of the benefits of entering Creditors’ Voluntary Liquidation when your company owes tax arrears:

  • You reduce the chance of serious allegations being made against you – director misconduct, for example, or wrongful/illegal trading
  • The process is carried out by a licensed professional so you know the company is being closed down correctly, even if it has HMRC debts
  • If you’ve worked as an employee of your company, you could be eligible to claim redundancy pay

Director redundancy pay is an important aspect of voluntary insolvent liquidation, and could be used in a number of ways – to pay for the CVL, for example, repay some of the company’s debts, or support your personal finances.

For more guidance on closing a company with HMRC debts, claiming director redundancy, or insolvency and liquidation in general, please contact our expert team. UK Liquidators offers free same-day consultations, and works from an extensive network of offices around the UK.

Jonathan Munnery

If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.

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