Can HMRC Investigate A Dissolved Company?
Dissolving a company is a significant decision and one that directors may make for several reasons, including when the company reaches the end of its useful life. Companies can also be dissolved when they are facing financial difficulties and believe that ceasing to exist is the best course of action. However, what happens when a dissolved company still has outstanding debts? Can HMRC investigate a dissolved company and pursue the debts even though it no longer officially exists? This article will shed light on these complexities and unpick the powers of HMRC over dissolved companies.
Understanding Dissolution & Company Debts
Before understanding HMRC’s powers in relation to dissolved companies, it is important to first understand what company dissolution is and when this process might be used.
Dissolution is a formal process that can be used to bring the legal existence of a company to an end. To do this, the company submits paperwork to Companies House to indicate that it has ceased trading and that it has no outstanding liabilities. Once the process is complete, the company will be removed from the Companies Register.
As we have noted, companies must make sure they have no outstanding liabilities before being dissolved. This means that company dissolution is typically only suitable for solvent businesses. If a company with outstanding liabilities is dissolved, the dissolution process does not automatically absolve it from its existing debts.
Can HMRC Pursue A Dissolved Company?
Because the dissolution of a company does not grant it immunity from scrutiny or debt recovery, creditors can seek to recover money owed by the dissolved company. This includes HMRC, which can investigate and pursue a dissolved company if it believes there are outstanding tax liabilities. HMRC may seek to reclaim unpaid VAT, corporation tax, PAYE and other monies owed to the government.
HMRC’s Powers To Recover Company Debt
If HMRC wishes to investigate a dissolved company, it has up to six years from the date of dissolution to do so. The timeline for this process differs if HMRC believes that the company has committed fraud or that directors have acted improperly. In these circumstances, they will have up to twenty years from the date of dissolution to investigate the dissolved company and recover debts.
To begin the process of debt recovery, HMRC will usually apply to the courts for the company to be reinstated and restored to the Companies House register. HMRC can then launch a full investigation into the company’s affairs as it would had the dissolution not taken place. Directors are not usually held personally responsible for company debts, but it is important to note that they can be held liable should the HMRC investigation discover that fraudulent or negligent activity has taken place. The consequences for directors in these circumstances are severe and may include a financial penalty, disqualification as a director and even a custodial sentence. Directors should always cooperate fully with HMRC’s investigations.
Next Steps For A Company With Debts
While dissolution can be a quick way to close a company, you should tread carefully if your company is in debt. As we have highlighted, HMRC has strong powers to investigate a dissolved company if it has outstanding liabilities and the penalties directors can face as a result of this investigation are severe.
If your company is in debt and you are considering closing it, you should therefore consider other options and seek professional advice. Liquidation via a creditors voluntary liquidation (CVL) may be more suitable for a company that is unable to pay its debts but wishes to close efficiently.
The team of licensed insolvency practitioners at My Liquidation can provide you with honest and transparent advice if you are struggling to deal with debts and believe that closing down the business is the way forward. Get in touch with us today and we will be happy to help you understand all of your options.
