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Can HMRC chase a dissolved company?

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If you dissolve a company with tax debts, what can HMRC do?

Dissolution is only suitable for solvent companies that are debt-free, so if you dissolve a company with tax debts, HMRC can chase the payment for up to six years from the date of dissolution. They can apply to reinstate the company to the Companies House register and investigate the affairs of the company including director conduct.

I dissolved a company with tax debts – can HMRC take action?

When a company is dissolved its name is removed from the register at Companies House and it ceases to exist as a legal entity. The dissolution process is typically used when a business is no longer required, has never traded, or a sole director is retiring.

Dissolution is an inexpensive closure option for limited companies, but it is only suitable for those that are solvent. So if the business owed tax debts prior to being dissolved, HMRC could still take action to recover the money owed.

The dissolution process demands that all creditors are notified of the directors’ intentions to voluntarily strike off their company. This makes it very unlikely that an application would go unchallenged if tax debts were unpaid.

If an application did go through, however, and the company was dissolved even though it owed money to HMRC, the tax body could apply to have it reinstated to the register. So how are companies reinstated in this way, and what are the implications for company directors?

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Chasing a dissolved company for tax debts

HMRC can chase a dissolved company for up to six years from the date of dissolution, but if they believe fraud has taken place or that the directors have been negligent in some way, they can chase for up to 20 years.

Their initial action would be to apply for the company’s reinstatement. This is done through the courts, and if successful, the company name is restored to the Companies House register. The business is then treated as though dissolution hasn’t taken place.

Following restoration, HMRC would launch a full investigation into the company’s affairs as well as the conduct of directors.

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How does HMRC investigate a dissolved company?

HMRC carries out stringent investigations to recover their tax losses, especially if they believe directors have deliberately attempted to evade payment by dissolving their company.

Following a company's reinstatement to the register, an investigation will be launched to uncover any potential issues or suspicious transactions, including:

  • Preferential payments – directors may have used available company funds to repay other creditors, without paying HMRC on a proportional basis
  • Breach of director fiduciary duty, also known as misfeasance – a director may have acted in their own interests rather than those of the company’s creditors once they became aware the company was insolvent
  • Fraudulent activity – for example, intentionally increasing the financial losses of creditors, or intentionally putting shareholders in a better position, prior to dissolving the company

The results of the investigation leaves company directors at serious personal risk of sanctions and financial liability if any instance of this type of wrongdoing can be proven. 

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Can HMRC chase directors personally for payment of tax debts?

Under normal circumstances company directors are protected by the ‘veil of incorporation’ – this makes the company a separate legal entity from its directors and includes the valuable protection afforded by limited liability .

If HMRC believes that wrongful or fraudulent activities have taken place, however, company directors will be at risk of personal liability for some or all of the outstanding tax debts. HMRC are also likely to apply interest charges and penalties to the debt, from the date of dissolution. HMRC can chase directors through the courts for payment on a personal basis, placing their home and other assets under significant threat.

The risk of trying to dissolve a company when it owes money to HMRC is considerable, and there is a better way to proceed.

Dealing with HMRC debts?

If you are experiencing pressure from HMRC for unpaid tax liabilities, you are far from alone. In fact HMRC is the most common creditor of businesses in the UK. For expert help and advice in tackling your tax debt, call our team.
The team are available now -  0800 644 6080

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Use Creditors’ Voluntary Liquidation to close a company with tax debts

Company dissolution is an inexpensive closure option, but it’s only appropriate in certain circumstances – namely, when no debts are owed. Creditors’ Voluntary Liquidation, or CVL, is the process to follow if the company’s debts (including those to HMRC) cannot be repaid.

Directors may be able to claim statutory redundancy pay using this route, which could cover the professional fees involved, and ensure they minimise the chances of misconduct allegations.

Real Business Rescue can provide further advice on company dissolution and reinstatement. We offer free, same‐day consultations, so please get in touch with our partner‐led team – we operate a nationwide network of offices around the country.

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