Can HMRC chase a dissolved company?

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

Dissolving a company is appropriate only for solvent businesses without debts. If you dissolve a company with tax owed, HMRC may pursue payment for up to six years after the dissolution. They have the authority to seek reinstatement of the company and examine both the company’s affairs and the conduct of its directors.

 

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

When a company is dissolved, it means it shuts down and is taken off the register at Companies House. Dissolving a company is typically done when it’s no longer needed or when a sole director is retiring.

Dissolution is a cost-effective way to close limited companies, but it’s only suitable for solvent ones. If the business had tax debts before dissolution, HMRC could still pursue payment.

During the dissolution process, all creditors must be informed of the directors’ plan to voluntarily remove their company from the register. This reduces the likelihood of approval if tax debts remain unpaid.

Even if an application is approved and the company is dissolved despite owing money to HMRC, the tax authority can seek reinstatement to the register. 

So, how does this reinstatement process work, and what does it mean for company directors?

 

Chasing a dissolved company for tax debts

HMRC can pursue a dissolved company for up to six years from the date of dissolution. However, if they suspect fraud or negligence by the directors, they can extend this period to 20 years.

Their initial step is to seek the company’s reinstatement through the courts. If successful, the company’s name is reinstated on the Companies House register, and the business is treated as if dissolution never occurred.

After restoration, HMRC would conduct a thorough investigation into the company’s affairs and the directors’ conduct. Closing down a company with outstanding debts is a serious matter, and the repercussions for company directors can be severe.

 

How does HMRC investigate a dissolved company?

HMRC conducts thorough investigations to recoup tax losses, particularly if they suspect directors intentionally tried to avoid payment by dissolving their company.

What could an HMRC investigation reveal when pursuing a dissolved company? Here are some potential issues that might be uncovered:

• Prioritised payments – directors might have settled debts with certain creditors, excluding HMRC.
• Violation of director fiduciary duty, or misfeasance – a director may have prioritised their interests over those of the company’s creditors.
• Fraudulent behaviour – such as deliberately inflating the financial losses of creditors before dissolving the company.

 

This scenario also exposes company directors to significant personal risk, including potential sanctions and financial penalties.

 

Can HMRC chase directors personally for payment of tax debts?

Normally, company directors benefit from the ‘veil of incorporation,’ which means the company is a distinct legal entity separate from its directors.

However, if HMRC suspects wrongful or fraudulent activities, company directors may face personal liability for some or all of the outstanding tax debts. HMRC is also likely to impose interest charges and penalties on the debt from the dissolution date.

HMRC can pursue directors personally through the courts for payment, putting their homes and other assets at substantial risk. The danger of dissolving a company with debts to HMRC is significant, and there is a more prudent way to handle such situations.

 Read More:

• Personally funding your failing company
• What are fixed and floating charges
• Can a company write off a CBILS loan
• What is a private company limited by shares
• Can’t pay my limited company’s creditors and debts

 

Use Creditors’ Voluntary Liquidation to close a company with debts

Company dissolution is a cost-effective method of closure, but it’s suitable only when the company has no outstanding debts. In cases where debts cannot be settled, the appropriate process is Creditors’ Voluntary Liquidation or CVL.

Through CVL, directors might be eligible for statutory redundancy pay, helping cover professional fees and reducing the risk of misconduct allegations.

For additional guidance on company dissolution and reinstatement, Vanguard Insolvency is available. We provide free, same-day consultations, so please contact our partner-led team – we have an extensive network of offices across the country.