Whether it’s due to a decrease in takings, unforeseen costs or circumstances beyond a company’s control, directors can find themselves dealing with HMRC company debt. As with any type of debt, dealing with debts to the tax office should be a top priority if you want the company to survive. HMRC can and will take whatever action they can to recover what is owed to them.
What is HMRC company debt?
Every company has to pay various taxes to HM Revenue & Customs (HMRC). Corporation Tax, Pay As You Earn (PAYE), National Insurance (NI) and Value Added Tax (VAT). Should a company, for whatever reason, fall behind on any of these payments, that company will have a debt to HMRC.
What can happen if your company cannot pay its HMRC debt?
If you cannot repay your company’s bill to HMRC and don’t take the necessary steps to alleviate those debts immediately can lead to further problems further down the line. HMRC are notorious for pursuing companies and individuals that owe them money.What can happen if you can’t pay HMRC
Can HMRC chase your company for its unpaid debts?
As with any creditor, HMRC are allowed to pursue a company for unpaid debts. You should therefore act quickly if you want the company to survive. If you ignore initial reminders to repay your company’s HMRC debt, they can take the following action.
- Visits from HMRC bailiffs
Ignoring HMRC’s reminders isn’t a good idea. HMRC are known for pursuing those indebted to them, and failure to repay after receiving reminders or warning letters could result in a visit from bailiffs. High Court Enforcement Officers (HCEOs) act on the courts’ behalf. They can force entry into a business’ premises and recover items equivalent to the debt’s value plus interest and enforcement costs.
More on bailiffs
- Winding-up petitions
Winding-up petitions are the most severe form of debt recovery that a creditor can attempt. A creditor owed more than £750 can apply for a winding-up petition. Once published in the London Gazette, the company’s bank freezes the bank accounts and makes trading impossible. If you owe to multiple creditors, those other creditors can ‘piggyback’ onto the petition and include their debts.
HMRC are well known for winding up companies that owe them money, so do not discount any threats of winding up action from them.
What to do if HMRC want to wind up your companyUnlike other creditors, HMRC does not have to file a CCJ or a Statutory Demand before filing for a winding-up petition.
How to deal with HMRC company debt
If your company falls into debt with HMRC, you should act to resolve it immediately. Speak to HMRC as soon as you find out your company is behind on its repayments. You may be able to come to a formal arrangement with HMRC, and the sooner you act to rectify the issue, the better.
We can also offer free, impartial advice with no obligation. Our team has years of experience negotiating with HMRC, putting us in a strong position to negotiate the best deal for your company’s circumstances.
- Informal repayment arrangements
Those dealing with company debt to HMRC can apply for a Time to Pay Arrangement (TTP). These are informal repayment arrangements that allow a company to repay Corporation Tax, PAYE, NI and VAT. TTPs allow businesses to repay what they can afford in instalments, improve the indebted company’s cash flow, and show a willingness to repay. They tend to last between six and twelve months but may last longer depending on the company’s circumstances.
More on Time to Pay Arrangements
- Formal repayment arrangements
If your company is dealing with more than HMRC company debt or your situation requires something more formal, then a Company Voluntary Arrangement (CVA) may be a more suitable solution. CVAs are formal repayment arrangements allowing companies to repay their unsecured debts in affordable monthly instalments while continuing to trade. Generally, CVAs last five years, and once the arrangement concludes, any remaining unsecured debt is written off.Although HMRC are no longer wholly unsecured creditors, they will still consider a CVA application.More on Company Voluntary Arrangements
- Restructuring through administration
Sometimes, repaying isn’t a feasible way of dealing with HMRC company debt. In which case, you can explore restructuring the company via administration. Administration involves a licensed insolvency practitioner taking control of the company and making the necessary changes to sell it or make it appealing to potential buyers. The company is protected from creditor pressure for the administration’s duration.
More on company administration
- Closing through liquidation
If the company’s debts are of such a level that the company cannot feasibly recover, whether they’re to HMRC or other creditors, you may be better off closing the company via a Creditors Voluntary Liquidation (CVL). During the liquidation, the company is closed, and the employees made redundant. Going into liquidation removes all creditor pressure as the company will cease to exist after the arrangement concludes. After a CVL concludes, the directors can start a new limited company if they’re not found to have committed any wrongdoing. Voluntarily closing the company is often preferable to waiting for creditors to apply for compulsory liquidation via a winding-up petition.
More on Creditors Voluntary Liquidation
Companies must pay tax contributions. Should your company fall behind on those repayments, those debts should be dealt with as a matter of urgency; HMRC won’t turn a blind eye to late or missed repayments. Failing to repay outstanding amounts of Corporation Tax, Pay As You Earn (PAYE), National Insurance (NI), or Value Added Tax (VAT) can lead to visits from bailiffs and even the issuing of a winding-up petition, closing the company through compulsory liquidation.
The size of your company’s debt to HMRC and whether you have any other creditors will have a bearing on what help is available. Informal repayment arrangements can help alleviate your HMRC debts, as well as more formal repayment arrangements, which can include other creditors’ debts. If monthly repayments aren’t feasible, restructuring the company or closing it through a voluntary liquidation would be preferable to HMRC forcing it into compulsory liquidation.
What if my company cannot repay VAT?
Companies earning more than a certain amount per year must pay Value Added Tax (VAT). If your company finds itself in a situation where it can’t repay its VAT bill to HMRC, you may receive penalties and fines. You should speak to us as soon as possible for free, impartial, non-obligatory advice on this issue.
Help if you can’t repay your VAT bill to HMRC
Can my company repay other creditors before HMRC?
With the threat of HMRC winding up your company, it may be tempting to repay their outstanding amount before any of 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 this hierarchy can lead to accusations of creditor preference.
HMRC is a preferential creditor and second in the payment hierarchy
Am I personally liable for my company’s HMRC debt?
Under normal circumstances, a limited company and its director are separate entities. Under normal circumstances, 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 prior to or during the insolvency, have personal guarantees or an overdrawn Directors Loan Account (DLA). In which case, the director can be held personally liable.
More on personal liability for company debt
💬 Live Chat - Available
✅ Free confidential help & advice
If you or your company is in financial difficulty, I may be able to help you. Our phone lines operate 9am until 9pm - 7 days a week.Chat with meFor immediate help & free advice, please freephone:
Book a free telephone consultation with one of our initial advisers