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The answer to the question Can you write off HMRC debts? is no HMRC tax debts cannot be 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? 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.

Can You Write Off HMRC Debts?

How To In Effect Write Off HMRC Debts

It is possible to write off an element of HMRC debts if your company were to go into a Company Voluntary Arrangement. 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.

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. 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 Director’s 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.

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.

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.

Difficulty Paying HMRC

If you have difficulty paying HMRC then it is possible to work with HMRC.

Company Pay HMRC In Installments

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 installments.

Time To Pay Arrangement

A common way to repay the tax debt is in installments. 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.

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 getting rid off HMRC 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 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.

GET IN TOUCH FOR HELP

For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: April 13, 2024

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Disclaimer: Can You Write Off HMRC Debts?

This page Can You Write Off HMRC Debts? is not legal advice and should not be relied upon as such. This article on clearing HMRC debts is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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