What To Do If Your Company Is In Debt To HMRC
Businesses can struggle to pay their creditors for a range of reasons, whether due to cash flow issues or external pressures and events. No creditor is exempt from this possibility, and while being in debt to HMRC may feel particularly overwhelming, it’s a challenge faced by surprisingly large numbers of businesses each month.
Unpaid VAT, PAYE or corporation tax are all classed as HMRC debts and falling behind on these obligations can have serious consequences for any business including legal action and compulsory liquidation. However, if you find yourself in debt to HMRC you should not panic as there are steps you can take to turn things around. We have created this guide to walk you through the key actions you can take when your business has HMRC debts to ensure you resolve the situation in the most appropriate manner.
Understand Your Debts Properly
When dealing with any kind of business debt, your first step towards resolution should always be to assess the situation with a clear head. Ignoring your debts is the worst thing you can do and casting fresh and critical eyes on your finances will help you to both understand what you owe and begin to draw conclusions as to why this situation has arisen in the first place.
Taking time to understand your debts properly is particularly important if your company is in debt to HMRC. As we have touched upon, HMRC debt can arise from different tax categories and each type of debt comes with its own set of rules, timelines, and consequences. By knowing exactly where the problem lies, you can target your remedial approach suitably and avoid any further penalties.
It is also vital that you work out exactly how much you owe HMRC, including any penalties. This will help you to understand the full scope of the problem and whether you can quite quickly raise funds to repay the debt or whether a more managed approach will be necessary.
Explore A Time To Pay Arrangement
One of the most common solutions for businesses in debt to HMRC is a Time To Pay Arrangement. This is a formal agreement which allows you to repay your debt to HMRC in more manageable instalments over an agreed period (typically 12 months). Providing all payments are made on time and as agreed, HMRC cannot take any further action against you when a Time To Pay Arrangement is in place, thus giving your business valuable breathing space to get its finances back on track.
To get a Time To Pay Arrangement, you must be prepared to communicate directly with HMRC about your situation. These formal agreements are not granted lightly and evidence that you are both committed and able to resolve the debt will be required. HMRC will also look at your previous tax return history to assess the level of risk involved in entering into a payment plan with you.
Consider Voluntary Liquidation
If your business is refused a Time To Pay Arrangement or has no realistic path to recovery and debt repayment, you might need to consider entering into the Creditors Voluntary Liquidation (CVL) process. This formal process enables the closing of a limited company with debts to HMRC, by working with a licensed insolvency practitioner to sell assets to repay creditors (including HMRC) and then winding up the company.
While opting for a CVL is essentially the most severe action you can take if you are in debt to HMRC, there may be no other option and this process can also help you to avoid further debt accumulation, relieve the pressure of ongoing obligations, and provide a structured way to settle what you owe. Moreover, a CVL can help to prevent any further action from being taken against you as a company director. It ensures your debts are settled appropriately and legally before the company is dissolved.
It is important to note, however, that director conduct will be investigated as part of the CVL process. The appointed insolvency practitioner will examine events leading up to company insolvency, to check that no wrongful trading or misfeasance occurred. Evidence of wrongdoing may result in personal liability for company debts and HMRC is allowed to pursue an investigation against a dissolved company for up to 6 years following its closure.
Get Professional Advice
With a range of options available if your company is in debt to HMRC, seeking professional advice is crucial. Outcomes can span recovery to company closure via a CVL, so it is important that you get a complete grip on your options as soon as possible to ensure that you navigate your HMRC debts in the most effective way.
At My Liquidation, our licensed insolvency practitioners can provide you with transparent and comprehensive advice regarding your company’s debt concerns. We can help you explore all of your options, including closing a limited company with debts to HMRC via the Creditors Voluntary Liquidation process. Don’t hesitate to get in touch today for trustworthy guidance.
