Can HMRC force my company into liquidation?

Yes, HMRC has the power to liquidate a business if the total amount of unpaid taxes is more than £750.

Understanding HMRC’s powers when it comes to company liquidation can help business owners make informed decisions about their finances. 

This means that all assets are sold, and those with monetary claims have their debts settled from the proceeds of this sale.

Understanding these powers of HMRC is key for any company wanting to stay compliant but can also be useful in helping businesses decide how they want to manage their finances in order to minimise the risk of winding up

How will HMRC force my company into liquidation?

• Warning letters

The Notice of Enforcement, sometimes referred to as a Final Opportunity Letter, will be the last letter in the string of warning letters we outlined previously. You have seven days from the date of the Notice of Enforcement to make payment before the debt is turned over to a Debt Collection Agency (DCA) or HMRC bailiffs/enforcement officers.

• Bailiff action

Debt collectors or HMRC bailiffs will come to your home or business with the intention of taking property to satisfy the tax debt. If the debt is not settled, they will take an inventory of the assets subject to seizure (known as a Controlled Goods Agreement) and come back in seven days to confiscate the goods

• Court action

HMRC may start a legal action with the intention of liquidating your assets if the debt you owe exceeds the value of the assets that were seized. When a County Court Judgment (CCJ) or Statutory Demand for Payment (SDFP) is not honoured, HMRC may file a petition for winding up the business as evidence of insolvency.

• Winding up petition

Your choices are quite limited if the court issues a winding up order, therefore you must take immediate action to stop HMRC from pushing your business into liquidation.

What steps may you then take to prevent liquidation?

How can I stop HMRC liquidating my company?

There are several strategies for avoiding HMRC’s forced liquidation. Open communication with the tax authority is essential throughout the process because it demonstrates that you aren’t trying to avoid paying your tax debt.

Time to Pay (TTP) arrangement

If your company’s financial issues are short-term, the Time to Pay scheme offers additional time to pay the arrears – often an additional 3-6 months. As a director, you are entitled to negotiate Time to Pay arrangements; nonetheless, in these situations, getting expert insolvency assistance is beneficial.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement may be acceptable to HMRC. They receive a percentage of the debt over a long period of time through this legal insolvency procedure. CVAs must be negotiated by an insolvency practitioner who is duly licensed (IP).

Company administration

Another formal insolvency procedure that puts an end to ongoing or impending legal action against the corporation is company administration. In essence, a licensed IP assumes management of the business and develops a strategy for the future.

Creditors’ Voluntary Liquidation (CVL)

It is advisable to liquidate the company voluntarily rather than waiting for HMRC to bring a winding up petition if there is no other option. Even if you still owe HMRC taxes, you can voluntarily dissolve your company.

Why voluntary liquidation is better than compulsory liquidation by HMRC?

By putting your business into creditors’ voluntary liquidation, you put creditors first and lower your risk of engaging in improper transactions. You must prioritise the needs of your creditors as a director of an insolvent company, which means making sure they don’t sustain unwarranted financial loss.

The most important thing is to move as soon as you realise your business won’t be able to make the payment. By seeking professional assistance early on, you may be able to avoid legal action and HMRC liquidation.

It’s important to be aware that if you work for the company, you could qualify for director redundancy by signing a CVL. Please get in touch with a member of our knowledgeable staff for further details on this and the process of voluntary liquidation.

Conclusion

HMRC may force a company into liquidation for a variety of reasons related to taxes. If a company is unable to pay its taxes or if it is found to have engaged in tax fraud or other illegal activities, HMRC may take action to recover the unpaid taxes, which could include forcing the company into liquidation.

Additionally, if a company fails to file required tax returns or make required tax payments, HMRC may take action to recover the unpaid taxes, which could include forcing the company into liquidation. It’s important for companies to stay compliant with tax laws and regulations to avoid these types of actions. If you are worried that HMRC may force liquidation on your business, simply complete the online enquiry form.