You cannot write off HMRC debts. HMRC debts may go unpaid because a company or individual is unable to pay but that does not result in them being written off.
If you cannot afford to pay HMRC and go into an insolvency procedure such as Bankruptcy, IVA, or in the case of a company, Liquidation, then HMRC will claim the tax debts within the process and it may go unpaid. However, that is a matter of payment of the debt; it is not a matter of it being written off.
Thousands of people have concerns about HMRC debts, you are not alone.
What To Do About HMRC Tax Debts
What to do? Find out how much you owe HMRC. To deal with HMRC tax debts, you need to know how it is broken down. In addition to the tax, there may also be interest and tax penalties that you need to be aware of.
If the debts to HMRC are substantial and placing a burden on your company then consideration of whether they can be written off is natural. As you cannot write off HMRC tax debts do not ignore them. They do not go away as one of life’s certainties. But nevertheless, all is not lost in attempting to clear HMRC debts.
What Happens If You Owe HMRC?
If you owe money to HMRC, it will require you to make payment of the tax that is owing. If that debt is not paid, then the matter will typically be handed over to HMRC debt management. That team will start to send you letters to inform you of a debt due to HMRC.
Over a period of time, the matter will escalate as HMRC encourages you to clear the debt. They will send you HMRC chasing letters. If HMRC still does not receive payment, they may instruct HMRC tax debt collectors to take matters further.
Ways HMRC Debt Can Be Resolved
Company Voluntary Arrangement
It is possible to write off an element of HMRC debts if your company were to go into a Company Voluntary Arrangement. This will involve coming up with a plan that is formally approved by 75% or more of creditors, including HMRC, to reduce the debt down to a manageable level. The unpaid element can then be written off.
However, a Company Voluntary Arrangement is a relatively rare event. The vast majority of companies going into insolvency procedures go into either Liquidation or Administration instead.
Liquidation
Although you can close a company with HMRC debts, if a company goes into Liquidation the debt is NOT actually written off but the effect is often as if they were so it can be an appropriate way to resolve HMRC debts. Going into creditors voluntary liquidation can be an affordable way for a company to deal with HMRC tax debts. The costs of liquidation can be considered quite reasonable.
The reason the debt is not written off usually is because the company is separate from its Directors, so the debts are the company’s debts, not the directors’ personal responsibility. The HMRC debts are therefore the company’s debts and are locked into the company. If the company cannot continue to trade and must be wound up and put into Liquidation then debts remain with the company IN LIQUIDATION. The debt is not written off but because they will not be paid, it is as if they were. Nevertheless, the liquidation procedure can be utilised to deal with all HMRC debts including penalties.
However, if HMRC tax debts go unpaid due to Liquidation, then Directors can still be faced with personal liability issues. For example, they might be issued an HMRC Personal Liability Notice. Alternatively, if the Directors have conducted themselves in a manner consistent with Wrongful Trading or Fraudulent Trading.
Administration
If a company can be rescued because it has a profitable core business, then using the Administration procedure, it is possible to restructure the company and potentially save it. An Administration provides what is known as the moratorium that freezes the position of creditors and stops them from taking enforcement action against the company. This can provide a valuable breathing space so that the company can survive and then enable payment to HMRC and other creditors.
Company Pay HMRC In Instalments
If you have difficulty paying HMRC, then it is possible to work with HMRC. When you have difficulty paying HMRC debts because you have a company cash flow problem, you may be able to agree to repay the debt by way of instalments.
Time To Pay Arrangement
A common way to repay the tax debt is in instalments. HMRC has a specific plan which can be used, known as a Time To Pay Arrangement.
What Is A Time To Pay Arrangement?
You may be able to enter into a Time To Pay Arrangement in which the HMRC tax debt is no longer immediately payable and you arrange to repay HMRC over a period of time. This may start as a verbal arrangement but then it may need to be put in writing so that HMRC feels comfortable that it will be stuck to.
What Happens If You Can’t Afford To Pay HMRC?
If you can’t afford to pay HMRC, they will still pursue the tax debt. It does not mean that they will be paid because the expression ‘you cannot get blood out of a stone’ holds true.
However, even if you can’t afford to pay, that does not mean that HMRC debts will be written off. Even if you can’t afford to pay you can expect HMRC to pursue the debt for a considerable period of time.
Does HMRC ever write off debts itself? Yes, but not often is the answer to the question Does HMRC ever write off debt.
How Long Can HMRC Chase A Debt?
HMRC can chase a tax debt for any period of time in light of Section 37 of the Limitation Act 1980. There is no limitation period on tax debts.
However, this does not apply to National Insurance Contributions (“NICs”), which are not deemed to be tax but ‘contributions’. HMRC can chase NICs for up to six years and should initiate legal action within that period of time if they want to pursue matters.
HMRC Debt How Far Back?
HMRC can in cases of tax fraud look back over a taxpayer’s tax affairs for a period of up to 20 years.
More commonly, HMRC will not be able to go back so far. Typically limited to reviewing matters going back 6 years if a taxpayer’s conduct was ‘careless’ and HMRC discovers a loss of tax.
Advice On Getting Rid Of HMRC Debts
Get advice quickly and at an early stage in respect of dealing with HMRC tax debts. An Insolvency Practitioner, such as Oliver Elliot’s CEO, will be able to assist you and provide expert advice as to what your options are and how you can deal with and look to clear HMRC debts.
If you can’t afford to pay HMRC, they will write the debt off if you go into insolvency, such as Voluntary Liquidation. In such a case HMRC will file a Proof of Debt with the relevant Insolvency Practitioner for them to deal with it.
It is important you get advice and do not hold off from doing so because HMRC is proactive in pursuing debts owing to it. An Insolvency Practitioner can be a useful person to help you communicate with HMRC.
Dissolve A Company To Write Off HMRC Debts?
It is not possible to dissolve a company to clear HMRC tax debts.
HMRC will not agree to a Director dealing with company debts that are owed to it. It will object to a striking off application (using the DS01 Form) and it is a legal requirement that they are notified of any attempt to dissolve the company. Such an attempt without proper notice to HMRC could lead to Directors being prosecuted and disqualified as Directors.
Should You Go Into Liquidation To Clear HMRC Debts?
If the company is insolvent and unable to continue then going into Voluntary Liquidation is a responsible way forward for a Director. When a Company Voluntary Arrangement is not possible to write off some of the HMRC debt and restructure the business then Liquidation is likely to be a viable way forward to in effect write off the HMRC debt.
Can You Trade On With HMRC Debts Written Off?
If a Company Voluntary Arrangement is an option then subject to agreement with HMRC and other creditors continuing to trade may be possible.
If HMRC and other creditors can see that the restructuring plans are viable and would enable them to obtain a better return to that of Liquidation then they may be agreeable to this way forward. It will typically involves a three to five year repayment plan. However, the plan does need to be manageable otherwise the company risks collapsing into Liquidation in any event.
Personally Liable For HMRC Debts?
HMRC can make Directors personally liable in some cases.
This will typically involve suspected serious misconduct by the Directors to attract this sort of draconian approach from HMRC. Such instances commonly can arise if the Directors have caused the company to trade with HMRC monies and in effect avoided tax such as PAYE on their own drawings out of the company.
