Clear HMRC Tax Debts

Do you want to clear HMRC tax debts? There are three ways to clear HMRC tax debts for a limited company. If the company is insolvent and cannot survive in its current form, then formal insolvency procedures such as liquidation will likely have to be considered. If the company has a profitable core business, capable of being reorganised and returning to solvency, then there are options such as a time to pay arrangement with HMRC or seeking a source of finance to deal with the temporary cash flow problem.

Formal Insolvency Procedures

If your company cannot realistically recover from its current downturn without radical action, it may well need to consider formal insolvency procedures to assist it and clear HMRC tax debts, such as:

• Creditors Voluntary Liquidation (“CVL”): A structured way to wind up an insolvent company in an orderly manner by realising the assets and distributing the proceeds among creditors after taking into account the costs of liquidation.
• Company Voluntary Arrangement (“CVA”): A negotiated deal where creditors agree to accept reduced or rescheduled payments over time. The company may therefore survive after the CVA is completed with HMRC tax debts addressed.
• Administration: Used when there’s a viable business to rescue or sell as a going concern, protecting the company from legal action while options are explored. The company may therefore survive after the Administration has enable the company to turn the corner.
• Compulsory Liquidation: Is a way to wind up a company through the court using a winding up petition. Sometimes it can be less expensive to a CVL, but the directors will then have to attend on the Official Receiver at the Insolvency Service to deal with the winding up.
• Voluntary Strike Off: Although generally unsuitable for a company with unpaid debts, it is possible to close down a company using the strike off procedure at Companies House through the DS01 form, provided the rules are strictly complied with. This option is the least likely to be effective as HMRC will probably object to the voluntary strike off and wish to see the company go into liquidation and be wound up by a liquidator entirely independent from the directors to ensure that the company affairs are properly reviewed..

Contact HMRC And Discuss Payment Options

It is not unknown that you can negotiate with HMRC, especially if you make contact before they start enforcement action.

You can propose a Time to Pay Arrangement, which allows you to repay the debt in manageable monthly instalments, usually over 6 to 12 months.

To apply, you’ll typically need to ensure all tax returns for the company for all applicable HMRC taxes are brought up to date forthwith, put forward a credible position that the current financial blip is temporary and be able to evidence a cash flow forecast that shows how and when the debt will be repaid.

If accepted, this tends to halt further legal action, as long as you stick to the agreed terms. If you don’t, then you can anticipate that a move towards the enforcement of HMRC debts will recommence.

Consider Funding Or Finance

If your business is viable, having a profitable core business but simply short on cash, financing the debt might be available to address the short-term company cash flow problem.

This could include invoice financing, business overdrafts, director loans and equity finance from existing shareholders or even assistance from family and friends. Be cautious, though, taking on more debt only makes sense if you have a realistic path to repayment.

Using finance to clear HMRC debts buys time, protects your reputation, and may avoid more serious consequences.

Don’t Ignore The HMRC Debts

Fundamentally, the most important step is to recognise the debt. You should expect HMRC to pursue the debt they are owed.

Do not therefore, ignore HMRC chasing letters, which are issued for a reason, and if nothing else, it will not make the problem disappear.

Be responsible and demonstrate this to HMRC by being proactive in your dealings with them. In fact, delay often leads to surcharges, interest, and potentially enforcement action such as bailiffs or a winding-up petition.

Whilst HMRC can on its own accord write off debt, this tends to be exceptional and therefore should not be considered an option available in most instances.

Check The Amount Owed To HMRC

Before agreeing to pay or negotiating, verify the figures. Mistakes do happen, especially if your returns were estimated or filed late.

Make sure that you have filed all the required returns, addressed with HMRC any discrepancies between their figures and yours and thereby reconciled your account so that you know the correct amount that you owe, so you do not under or overpay.

Contact Us For Help

If your company is struggling to find a way to deal with and clear HMRC tax debts, you are certainly not alone and the good news is that there are options available to deal with the problem. But it will not sort itself out. The earlier you seek advice, the more choices you’ll have and the better the chance of minimising damage to yourself and your business.

Whether it’s informal or a formal procedure, such as an insolvency process like liquidation, the right solution depends on your specific situation. Delaying only narrows your options and increases risks for you as a director personally.