What happens when your company can’t pay its tax bill?
For many limited companies in Scotland, HMRC tax bills can quickly become one of the most challenging tax obligations to manage. When cash flow is tight, missing a tax deadline can feel overwhelming, particularly with HMRC penalties and interest charges stacking up.
If you are struggling to pay company tax in Scotland, you are not alone, however, it is important to know your options before the situation escalates out of control.
What happens if you cannot afford to pay HMRC in Scotland?
Failure to pay a tax bill is taken extremely seriously by HMRC and they have huge powers when it comes to recovering money they are owed from limited companies. If payments are missed or returns are late, you may face a number of consequences including:
- Penalties and surcharges
- Interest charges on the outstanding debt
- Visits from HMRC enforcement officers
- Potential winding-up petitions if the debt remains unpaid
In Scotland, as in the rest of the UK, ignoring HMRC arrears will only make the problem worse. Keeping communication open with HMRC as soon as you discover you will be unable to pay your tax bill is highly advised. Remember, the sooner you act when it comes to late HMRC payments, the more options you will have.
What are my options when I cannot pay HMRC the money I owe?
When struggling with HMRC bills, you may be able to enter into negotiations to pay the tax you owe in instalments.
HMRC will sometimes allow breathing space if you approach them before enforcement action begins and explain the difficulties you are experiencing paying your VAT or Corporation Tax bill.
You may be able to negotiate a Time to Pay (TTP) arrangement which acts as a formal instalment plan that spreads the VAT debt your company owes over a number of months. Here are some key facts on Time to Pay Arrangements for tax debts:
- Usually lasts between 6–12 months
- You must be able to show HMRC that your company can afford to keep up with the agreed instalments over the duration of the Time to Pay arrangement
- All VAT returns and other payments owed to HMRC must be paid in full and on time during the course of the Time to Pay plan
A Time To Pay is not guaranteed, and if you default on the arrangement once it is in place, HMRC may escalate enforcement quickly.
What should I do if I owe HMRC and other company debts?
If your company is viable but struggling with historic HMRC debt alongside other business debt to creditors such as suppliers, landlords, or your bank, a formal restructuring process known as a Company Voluntary Arrangement (CVA) could be an option.
A CVA is a formal agreement entered into by an indebted company and its creditors, supervised by a licensed insolvency practitioner, that allows you to:
- Consolidate company debts into affordable monthly payments
- Freeze interest and charges
- Continue trading while paying down the debts the company owes
While a CVA can be a great option for those companies struggling with unmanageable debts, it is only suitable for those who have a realistic chance of future viability. Unfortunately for some companies their problems will have taken them past the point of rescue, and in these instances, the company may need to consider closing down.
Can a liquidate a company with HMRC debt?
It is possible to liquidate a company in Scotland with outstanding HMRC debts. If the company is insolvent and has no realistic prospect of repaying the VAT and other debts it owes, liquidation may be the most appropriate step.
This is done by a director-initiated process known as a Creditors’ Voluntary Liquidation (CVL). This is a formal insolvency process administered by a licensed insolvency practitioner where:
- The company ceases trading
- Assets are sold to repay creditors
- Any remaining debts (including VAT and Corporation Tax) are written off unless these have been secured with a personal guarantee.
For directors, liquidation can be a difficult option to consider, but it is often the fairest solution for all parties when a business has no viable future.
If you are struggling to pay your HMRC bill and are considering your options for the future, you should make it a priority to speak to a licensed insolvency practitioner as a matter of priority. A licensed insolvency practitioner will help you explore all possible avenues, from repayment plans with HMRC to formal insolvency procedures.
At Scotland Liquidators, we provide clear, confidential advice to directors facing VAT arrears and other business debts. Speak to a member of the team now for immediate help and advice.
