Can business HMRC tax debts be written off?

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

If your company is burdened with HMRC debts that you find challenging to repay, you may be curious about the circumstances, if any, under which you can have them forgiven.

Encountering difficulties in settling bills for VAT, National Insurance contributions, or PAYE is not uncommon. A recent report indicates that HMRC is the largest single creditor in 65% of liquidations. 

But what choices do you have if you have outstanding tax arrears that you are unable to clear?

 

Writing off tax debts – what are your options?

In specific situations, certain business HMRC debts can be partially or fully forgiven. However, this is not a straightforward option, and it is advisable to arrange a repayment plan with HMRC if possible.

The only way to potentially write off a portion or the entirety of an HMRC debt is by engaging in an insolvency procedure such as a Company Voluntary Arrangement (CVA) or liquidation. In a CVA, HMRC might agree to forgive some of the debt, allowing you to repay the remaining amount gradually. In liquidation, although the tax debt is not technically written off, it stays with the company, which is then closed down, achieving a similar outcome.

 

Dealing with HMRC debts via a Company Voluntary Arrangement

If you believe your business has the potential for financial viability despite its tax debts and could thrive in the future, you may consider a formal insolvency procedure called a Company Voluntary Arrangement (CVA). This approach allows you to continue trading while gradually repaying HMRC and other creditors.

Initiating a CVA involves contacting an insolvency practitioner who will establish and oversee the arrangement on your behalf. They will propose a manageable repayment plan over three to five years to your creditors, including HMRC. If your creditors, HMRC included, agree to the terms of the CVA and you adhere to the monthly repayments, HMRC will cease pursuing you for the debt, and a significant portion of it may be written off.

The question arises, what motivates HMRC to agree? Typically, HMRC consents to a CVA if it believes that more of the debt can be repaid through this route than if your business undergoes liquidation. Therefore, a CVA is likely to be accepted only if your business has a strong chance of survival.

 

Dealing with HMRC debts via liquidation

Another potential avenue to write off HMRC debts is through the liquidation of the business. If an agreement for a Company Voluntary Arrangement is not feasible, opting for a responsible closure through Creditors’ Voluntary Liquidation (CVL) is advisable. This is a preferable alternative to awaiting HMRC’s closure through a winding-up order, which can be more detrimental.

In a CVL, the HMRC debt remains with the company during liquidation, effectively leading to its write-off. However, there is a potential risk when a business goes into liquidation with outstanding tax bills — the amount owed may be transferred to you personally. This is likely only if you’ve provided a personal guarantee for tax debts through an HMRC personal liability notice or have been involved in wrongful or fraudulent trading.

Read More: 

• What happens if I can’t pay my tax bill
• Tax HMRC
• A director’s guide to corporation tax relief
• Can’t afford to pay Construction Industry Scheme tax
• How does HMRC debt collection work

Are you facing difficulties in paying your tax bill?

If you find it challenging to settle a tax bill, the most prudent action is to take early control of the situation. We have a track record of successfully addressing tax debts, and negotiating with HMRC, and can organise a free consultation to assist you in understanding your available options.