Can business HMRC tax debts be written off?

Can a limited company write off tax arrears owed to HMRC?

If your company is saddled with HMRC debts that you’re struggling to repay, you might wonder under what circumstances, if any, you can get them written off. 

Facing a bill for VAT, National Insurance contributions or PAYE that you cannot pay is not unusual, and according to a recent report, HMRC is the biggest single creditor in 65% of liquidations. But just what are your options if you have tax arrears you cannot pay?

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Writing off tax debts - what are my options?

In certain circumstances, business HMRC debts can be either partially or fully written off. However, it’s certainly not an easy option and it’s best to make a repayment arrangement with HMRC if you can.

The only way to write off some or all of an HMRC debt is to enter into an insolvency procedure such as a Company Voluntary Arrangement (CVA) or liquidation. In a CVA, HMRC may agree to write off some of the debt and allow you to repay the remaining amount over time. In liquidation, although the tax debt is not technically written off, the debt remains with the company, which you close down, so the effect is the same.

Dealing with HMRC debts via a Company Voluntary Arrangement

If you think your business is financially viable despite its tax debts and could go on to be successful in the future, you could enter into a formal insolvency procedure known as a CVA. This route allows you to continue trading while repaying HMRC and your other creditors over time.  

The first step is to contact an insolvency practitioner, who will set up and manage the arrangement on your behalf. They will contact your creditors, including HMRC, with a manageable repayment plan over three to five years. If your creditors (including HMRC) agree to the terms of the CVA and you stick to the monthly repayments, HMRC will no longer be able to pursue you for the debt and a sizeable amount of it will be written off. 

That begs the question, what’s in it for HMRC? HMRC will usually agree to a CVA if it thinks more of the debt will be repaid via a CVA than if your business is wound up. Therefore, a CVA is only likely to be accepted if your business stands a good chance of survival.

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Dealing with HMRC debts via liquidation

The other way you can potentially write off HMRC debts is to liquidate the business. If you can’t agree to a Company Voluntary Arrangement then a Creditors’ Voluntary Liquidation (CVL)  is the responsible way to close it down. It’s preferable to waiting for HMRC to close it down via a winding up order, which is likely to be far more damaging. 

In this case, the HMRC debt stays with the company in liquidation and the liability is effectively written off. However, when a business goes into liquidation with unpaid tax bills, there is a risk that the amount owing could be transferred to you personally. This is only likely if you’ve given a personal guarantee for tax debts via an HMRC personal liability notice or you’ve been involved in wrongful or fraudulent trading.  

Do you have a tax bill you’re unable to pay?

If you’re struggling to pay a tax bill, the best thing you can do is take control of the situation by acting early. We have a proven record of resolving tax debts and negotiating with HMRC and can arrange a free consultation to help you understand your options.