When a company director decides that a Creditors’ Voluntary Liquidation (CVL) is necessary due to an inability to pay their business debts, they are often surprised by HMRC’s response.
If you owe a tax debt to HMRC, you might assume that the government will be angered by your decision to liquidate the company, but in reality HMRC will accept this move if the circumstances are right.
Let’s take a look at why HMRC is open to Voluntary Liquidations after what may have been many months of previously pursuing the debt.
What are HMRC’s responsibilities?
As a non-ministerial department of the UK government, Her Majesty’s Revenue and Customs has a number of responsibilities. These include:
- Preventing tax debts from escalating
- Setting an example to the general tax paying public
- Forcing companies to close down if they fail to pay taxes which are owing
As a result, when a company submits a Creditors’ Voluntary Liquidation, this can actually help HMRC meet its responsibilities.
Which HMRC departments are involved in closing companies down?
HMRC is split into different departments and each one has different responsibilities and powers. If tax is not paid, the case will be escalated up HMRC’s hierarchy and further action may be taken. At the very top of the chain, the team in question will have a full view of the company’s circumstances and the tax owed.
Usually, the following HMRC teams are involved in voluntary liquidation: Debt Management & Banking Team, Enforcement & Insolvency Team, Fraud & Investigation Team and Securities Team.
How does HMRC work with companies?
Each department within HMRC will aggressively pursue the tax that is owed and they will only stop pursuing this debt when the money has either been paid or the company is closed.
If HMRC believes a company is insolvent or is close to becoming insolvent, it may request a Security Bond. Security may be in the form of cash or through an approved financial institution such as a bank guarantee.
HMRC will ask for the security through a legal document called A Notice of Requirement. This will outline:
- How much needs to be paid
- When it needs to be paid by
- The accepted methods of payment
The Notice of Requirement will often have a Personal Liability Notice attached.
HMRC agents or bailiffs may make visits to the family home. However, if the money owed consists solely of company debt, then personal assets cannot be taken. HMRC might visit the business premises to negotiate a settlement or seize company assets to cover tax debts.
The furthest the tax debt will go is the Enforcement & Insolvency Team. This is the most serious HMRC unit in the UK and any communications with this department must be taken seriously. One way or another, this team will resolve the issue, whether that involves collecting the money or closing the company down.
What happens if HMRC enforce a winding-up petition?
HMRC may take legal action in the form of a winding-up petition. If the debt gets to this stage, businesses are required to either pay the money or seek professional help immediately.
After all, the purpose of this petition isn’t to collect the tax debt, it is to legally force the company to close.
Usually, a County Court Judgement (CCJ) or Statutory Demand proceeds a winding-up petition. The court will want proof that the creditor has exhausted all other avenues when seeking payment of the debt. A Winding Up Petition can be costly, so HMRC will usually only resort to this when it’s absolutely necessary.
Once a winding-up petition has been issued, the company can no longer:
- Dispose or sell any assets or the company itself
- Issue a Notice of Intention (NOI) to appoint an administrator
Will HMRC take further action?
HMRC will usually continue to take action against the company until it has either appointed a liquidator or held a creditors meeting.
It’s unlikely that HMRC representatives would attend the Creditors’ Voluntary Liquidation meeting. Once the liquidation process has begun, HMRC will normally step aside.
HMRC also has a responsibility to monitor any directors who are considered to be serial offenders. If a company director takes voluntary liquidation on two or more occasions, HMRC may intervene.