HMRC Tax Liability and Liquidation

You’ve received a letter from HMRC demanding payment of your unpaid tax liability – so what do you do?  This will be one of two things.  You will either, contact your accountant to verify the sum is due and make the payment, or you will panic, put the letter in your pile of other letters received from HMRC and hope the problem will go away.  If your preferred course of action would be the latter, then it is only a matter of time before you receive another demand, until eventually, HMRC get to the stage of issuing a winding up petition against your Company.

Dealing with HMRC

Probably the best way to deal with HMRC’s initial demands is to pick up the phone and speak to them directly.  Explain that you are not able to make the payment in full and see if there is some sort of payment arrangement that you can agree to, to bring your tax liabilities up to date.  The earlier you contact them, the easier this process will be.  What they will expect, however, is that whilst in the payment arrangement, your future tax liabilities, whether that be PAYE/NIC, VAT or Corporation Tax, are maintained in full and paid on time. As Insolvency Practitioners we generally see that Companies who are receiving demands for payment from HMRC are probably receiving them due a reduction in cash, whether that be because sales have declined, or on occasion, you have lost money through non-payment from your own customers.  Once you are in arrears with HMRC, dependent on the amount owed to them, it is very difficult for Companies to clear monies due and maintain ongoing liabilities.  It is at this stage that Companies make the conscious decision to either, ignore the letters and hope that things improve, or HMRC issue a winding up petition.

Compulsory Liquidation

If you receive a winding up petition, don’t be tempted to place this with all the other demands you have already received and ignored.  The Petition will have been presented to Court with a hearing date being set for HMRC to formally request that your Company ceases trading with immediate effect and is placed into Compulsory Liquidation.  If that happens, the Official Receiver will be appointed as Liquidator and will take over the affairs of the Company from that hearing date. You need to seek urgent advice, which your accountant may be able to assist you with.  However, on the basis that a winding up petition has been issued against your Company, chances are it is insolvent and the advice of an Insolvency Practitioner should be sought.  In most cases, the outcome will be similar in that some form of insolvency procedure will be required.  However, what that procedure will be does not necessarily mean that your Company will be wound up.  There may be other options available without the need for a Liquidation process. To discuss your options and see if there is an alternative for your Company, contact Lines Henry on 0800 012 6649

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