How to deal with an unaffordable company tax bill

Being unable to pay your H.M. Revenue & Customs (HMRC) bill is a nightmare scenario for many limited company directors. With continued economic turbulence, businesses in many sectors have felt the impact, which could see them struggling to pay their bills to the tax office. So, what could happen if you can’t pay your HMRC bill?

Enforcement and fines

As a company director, you are required to pay:

Corporation tax
Pay As You Earn (PAYE)
National Insurance
Value Added Tax (VAT)

If you miss a payment, HMRC can take ‘enforcement action’ to recover what you or your company owes. If the debt relates to a limited company, it won’t become personal debt unless you’ve committed wrongful trading or traded whilst insolvent.

If you miss a payment to other creditors, they can pursue your company through the following:

Issue repayment reminders to make your company repay what it owes
Attempt to recover your debts through a debt collection agency
Send bailiffs or enforcement officers to recover assets of similar value to the debt
Issue a County Court Judgment (CCJ)

While other creditors must go through these steps, HMRC can immediately file a winding-up petition to force your company into compulsory liquidation. If you miss a payment, you should contact HMRC immediately, and they may allow you to repay what you owe in instalments.

Repayment arrangements

Speaking of repaying in instalments, a repayment arrangement exists especially for companies and individuals struggling to repay their tax bill. Time to Pay Arrangements (TTP) are formal repayment arrangements arranged directly with HMRC and allow you to repay debts of PAYE, National Insurance, corporation tax and VAT liabilities in affordable instalments.

If your limited company owes money to other parties, you should discuss your options with a licensed and regulated insolvency practitioner (IP).

Depending on your situation, they may explore a Company Voluntary Arrangement (CVA) to repay your unsecured debts in monthly instalments. These formal repayment arrangements allow the company to continue trading while repaying what it can afford, and halting creditor action for the duration. A similar arrangement called an Individual Voluntary Arrangement (IVA) exists for individuals and sole traders.

Administration and liquidation

If the previous options are unsuitable for your circumstances, then other options, which some may unfairly consider as ‘last resorts’ can still help you.

Companies for whom a repayment arrangement or administration isn’t suitable can explore a voluntary liquidation. This process involves a liquidator closing the company in an orderly manner, winding-up all the company’s affairs and ending all creditor pressure. While it means the end of the company, if the directors are clear of wrongdoing, they could start a new company afterwards.

Depending on the company’s situation, it might be possible to continue the business in a new limited company through a pre-pack process, though you’ll have to speak to your IP as to whether such a process would be viable for your company.

Summary

If your company owes HMRC for Corporation Tax, VAT, PAYE, or NI, the tax office can take enforcement action against that company. You should act as soon as possible to avoid the risk of compulsory liquidation. Discuss your situation with a licensed and regulated insolvency practitioner. Depending on your company’s circumstances, they may suggest one of several formal insolvency arrangements to alleviate your debts to the tax office.

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Adam Regan: Deputy Editor

Features and account management. 3 years media experience. Previously covered features for online and print editions.

Email Adam@MarkMeets.com