If your company can’t pay its tax bill, HM Revenue & Customs (HMRC) can take action to make the company repay what it owes. This action could include County Court Judgments (CCJs) and, at worst, a winding-up petition; formally closing and liquidating your company.

To prevent escalation, you should act quickly. There are options available to you:

• Contact HMRC and negotiate an informal Time to Pay Arrangement (TTP)
  A Time to Pay Arrangement (TTP) is an agreed, informal arrangement with HMRC that allows a company to repay its tax bill in an agreed timeframe. Before being granted a TTP, the company must demonstrate that it can maintain the required repayments. Repayment periods may vary but can last between three, six, and occasionally 12 months.
  More on personal liability for company debt
• Formal repayment arrangements
  A Company Voluntary Arrangement (CVA) could be a viable option for company directors who feel they’d have a genuinely profitable business were it not for the debts. CVAs involve paying a company’s creditors a monthly, affordable portion of their debt while the company continues trading.
  Read more about Company Voluntary Arrangements

• Explore company closure through liquidation
  If your company is struggling under creditor pressure and there’s little chance of repaying the debts, you can close the company via a Creditors’ Voluntary Liquidation (CVL). Doing so draws a line under the debts as they die with the company’s closure, removing creditor pressure and allowing the directors to move on.
  Read more about Creditors’ Voluntary Liquidation

What HMRC bill can’t your company repay?

Getting into debt with HMRC is a common problem, and a company could be hit with different tax bills at different times. These tax bills could include, but are not limited to:

• Corporation Tax
• Value Added Tax (VAT)
• National Insurance (NI)
• Pay As You Earn (PAYE)

HMRC take non-payment very seriously. Failing to pay VAT on time can leave you open to surcharges. Failing to pay PAYE, NI or Corporation Tax can leave you open to tax penalties, worsening your situation. These penalties can increase over the tax year depending on the number of defaults. HMRC will charge interest on overdue amounts from the due date until the date the company pays.

Large arrears can indicate cash flow problems and sometimes insolvency, meaning HMRC may further investigate the company’s tax affairs.

Can I be held personally liable if the company can’t pay its HMRC tax bill?

Under normal circumstances, a limited company and its director are separate entities, and the limited company’s debts won’t affect the director’s personal finances and vice versa. However, there can be circumstances wherein a director may have acted unlawfully before or during insolvency, have personal guarantees, or have an overdrawn Directors Loan Account (DLA). In this case, the director can be held personally liable if the company can’t pay its HMRC tax bill.

Trading whilst insolvent could also result in personal liability for the company’s debts, including any unpaid taxes.

Additionally, in some circumstances, legislation allows HMRC to take recovery action directly against directors of companies with liabilities owed to them, effectively treating them personally liable for the unpaid amount.

What are HMRC’s powers?

Should you ignore their reminders, HMRC can take further action to recover what your company owes.

• County Court Judgments (CCJs)
  If you can’t contest a debt, it will be proven in court. If the company can no longer pay that debt, it indicates the company is insolvent. The creditor, such as HMRC, can then issue a County Court Judgment (CCJ). Failing to address a CCJ, either by repaying or having it set aside in the allotted time, means it will stay on the company’s credit file for six years, making it harder to secure credit in the future.
  More on County Court Judgments
• Distraint order
  HMRC can serve a ‘distraint order notice’, which can be used to seize assets or stock. They won’t take items that impact the company’s ability to work or ‘tools of the trade’, but assets or stock deemed redundant could be taken.
  More on HMRC’s powers of distraint
• High Court Enforcement Officers (HCEOs)
  If you ignore reminders to pay your HMRC tax bill, they can send bailiffs or High Court Enforcement Officers (HCEOs) to collect items equal to the debt’s value, which are then sold to recover the amount.
  If the debt is a company’s, the bailiffs and HCEOs should only visit its registered address. While they can seize a company’s assets, they cannot take anything on lease, hire purchase, or items essential to keep the company running.
  More on bailiff powers
• Winding-up petition
  If the company owes more than £750, HMRC can issue a winding-up petition. When advertised, a winding-up petition leads to the company’s bank accounts being frozen, making trading impossible, and resulting in the company’s forced closure through compulsory liquidation.
  More on winding-up petitions

Can I repay other creditors before HMRC?

With the threat of HMRC winding up your company, it may be tempting to repay them before your other creditors. However, if your company is insolvent, you shouldn’t pay anyone directly without speaking to a licensed insolvency practitioner.

There is a payment hierarchy that should be adhered to. Deviating from it can lead to accusations of creditor preference or making a preference payment.

How we can help

If you find you’re behind on payments or your company can’t pay its HMRC tax bill, you do have options. If you’re unsure of the best way to move forward, contact us for free, impartial, non-obligatory advice.

Our experienced initial advisors can discuss your concerns over your company’s debts to HMRC. We can also discuss the company’s solvent position and assess its options.

1. Contact our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with a consultant to discuss your situation in more depth.
2. During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or what alternative options are available.
3. After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.

In summary

If your company can’t pay its HMRC tax bill, they will do everything they can to reclaim their money. A large, unpaid tax bill can indicate bigger problems within a company, so it’s essential to tackle the issue head-on and not bury your head in the sand; otherwise, the problems could worsen.

Case Studies

Designer Recliners Limited

Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)

A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.

Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.

Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.

Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.

Andy Wood, associate director and insolvency practitioner at Wilson Field said:

“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.

“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”

The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.

Silcox Coach Company

Kelly Burton • Automotive • Company Voluntary Arrangement (CVA)

Pembrokeshire-based Silcox Coach Company, which operates school transport as well as local bus services, has been placed into administration today.

Despite attempts by administrators from Sheffield-based Wilson Field to secure a buyer with various interested parties, the 134-year-old company, which operated a fleet of 65 coaches and buses from its base in Pembroke Dock, has now ceased trading.

Insolvency practitioners Kelly Burton and Joanne Wright from Wilson Field Limited were appointed by shareholders after the company experienced financial difficulties and as a result all 92 staff jobs have been made redundant.

However, in the region of 50 staff have been re-employed by Edwards Coaches of Pontypridd who have been granted the local authority contracts previously operated by Silcox.

Kelly Burton, director and insolvency practitioner at Wilson Field said:

“Silcox Coaches was a fourth generation bus and coach operator and over the years provided various forms of transport services latterly focussing local authority community bus routes, school services, coach hire and coaching holidays.

“The company had an excellent reputation within the industry, the local community and its clients. Initially there were a number of parties interested in buying the business and assets and we had hoped to save all the jobs of the loyal workforce. Sadly, despite our best efforts none of these came to fruition. On the positive side, Edwards Coaches of Pontypridd have re-employed approximately 50 of those staff.”

As well as office accommodation in Pembroke Dock, Silcox also occupied a small travel office in Tenby and  a large bus and coach compound near the offices in Pembroke Dock.

Edwards Coaches is the largest family owned coach company in Wales employing over 500 staff and operating 260 vehicles. It currently operates National Express coaches from Haverfordwest departing daily to Cardiff, Heathrow, Gatwick London and various other destinations plus transportation for over 8000 students to school or college each day from bus depots all over South Wales.

It also operates coach holidays for 80,000 passengers a year across the UK and Europe and operates The Edwards’ Red Dragon coach which is the official carrier of the Wales Rugby Team.

Travellers who have booked and pre-paid for a holiday with Silcox may be entitled to a refund and should contact either Bonded Coach Holidays (BCH) e-mail: bch@cpt-uk.org or The Confederation of Passenger Holidays UK (CPT) Tel: 020 7240 3131.

M J Squire Limited

Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)

A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.

However, recently it has been forced to close due to the downturn in the construction and retail industry.

The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.

Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.

February 10^th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.

Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.

Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case. 

“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”

“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”

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