Because they can lead to severe consequences for your company, you should tackle any company debts to HM Revenue & Customs (HMRC) urgently, before they lead to greater problems that could jeopardise its future.
Burying your head in the sand and hoping that the problem will go away will only exacerbate the situation.
If you act quickly and decisively, you’ll stand a better chance of achieving the outcome you want for your company.
What can HMRC do if my company owes them money?
HMRC won’t hesitate to pursue your company for what it owes them if that amount is overdue.
If your company owes them more than £750, they can apply to put that company into compulsory liquidation through filing a winding-up petition.
While a winding-up petition is often a last resort in debt collection, with other creditors filing County Court Judgments (CCJs), Statutory Demands, and sending bailiffs, HMRC don’t have to use other debt recovery options before doing so.
Once filed and approved by the issuing court, the winding-up petition becomes a winding-up order, freezing your company’s bank accounts and preventing your company from trading.
Your options to deal with company debts to HMRC
Fortunately, acting early enough means you’ll have more options to tackle your company’s debts to HMRC, and put you in a better position to achieve your desired outcome.
Repaying in instalments
If HMRC is your company’s only creditor, you may be able to come to an agreement to repay what you can afford in monthly instalments.
Time to Pay Arrangements (TTP) are arranged directly with HMRC and allow you to repay debts of PAYE, National Insurance, corporation tax and VAT in affordable instalments.
If your limited company owes money to other parties aside from HMRC, then a Company Voluntary Arrangement (CVA) may be more appropriate.
Like a TTP, a CVA allows your company to repay its unsecured debts in monthly instalments.
The company can continue trading for the arrangement’s duration, maintaining its place in the market and relationships with customers.
Restructuring the company
Sometimes, your company’s financial difficulties can indicate greater, deeper-rooted problems. In these cases, your company may benefit more from restructuring.
Administration involves a licensed insolvency practitioner acting as administrator.
They’ll look into the company’s finances and may proceed if the company can be rescued as a going concern, if there’s a chance of achieving better results than through liquidation, or the company has assets or property that could be distributed to creditors.
Closing the company voluntarily
If your company’s situation has deteriorated to the point that repayment and restructuring aren’t suitable, then closure might be your best option.
To close your company voluntarily, you should place your company in a Creditors Voluntary Liquidation (CVL).
Doing so will close your company in an orderly manner, putting a stop to all creditor pressure, and allowing you, as a director, to move on and start afresh should you wish to.
Summary
Debts to HMRC can have severe consequences for your company and should not be ignored.
The tax office doesn’t have to pursue other forms of debt recovery before applying to wind up your company and put it into compulsory liquidation, which will mean the end of the company if not addressed immediately.
The level of debt in your company and whether HMRC is the only creditor will determine the relief options available.
