How to liquidate your property or property management company
If your Scottish company has tax debts it cannot pay, you need to proceed carefully. A business that can no longer pay its debts when they’re due is known as ‘insolvent’, and there are strict rules that govern how the directors of an insolvent company must act and the steps you should take to close it down.
If you don’t follow the strict company closure rules, you and the other directors could become personally liable for some or all of the company’s debts. You could also be disqualified from acting as a company director in the future.
HMRC can take swift and decisive action against companies with PAYE, VAT or Corporation Tax debts. That’s why you should seek professional advice as early as possible. At Scotland Liquidators, our team of licensed Insolvency Practitioners provide professional advice and guidance to protect your position personally and close your business in the most appropriate way.
Closing a Scottish limited company with HMRC debts
Closing a Scottish limited company with HMRC debts
If your limited company is no longer financially viable and you have tax debts you cannot pay, closing it down can be an effective way to escape the financial pressure so you can move on to something new.
As soon as you become aware your company is insolvent, you should cease trading and seek professional advice from an Insolvency Practitioner. Your legal duties as a director now switch from promoting the success of the company to acting in the best interests of your creditors (parties you owe money to). By ceasing trading, it prevents the company from building up further debts it cannot pay that you could be made personally liable for.
Once you have ceased trading, you can voluntarily enter the company into a formal insolvency procedure called a Creditors’ Voluntary Liquidation (CVL). You must appoint an Insolvency Practitioner (IP) to act as the liquidator. They will take control of the company, invite claims from your creditors and sell off the company’s assets to raise money to repay HMRC and any other creditors.
The liquidator will repay your creditors in a strict order. As long as you have acted according to the insolvency rules, any debts the company cannot pay in full, including the company’s tax debts, will be written off. You’ll only have personal liability issues if you have signed a personal guarantee to secure company borrowing.
Why you need to act quickly with HMRC debts
Owing money to HMRC is not unusual. Most businesses in financial distress will have some form of tax debt. As the most common creditor in the UK, HMRC has strong powers of debt enforcement and will act quickly to recover its money and prevent you from accruing further tax liabilities you cannot pay.
It might be possible to negotiate a Time to Pay arrangement with HMRC, which will give you more time to pay what you owe. However, if your business is no longer financially viable, it’s in everyone’s best interests to close it down.
If you do not enter the company into liquidation voluntarily, HMRC can issue a Winding Up Petition to force the business into Compulsory Liquidation. As part of the process, the liquidator will investigate the reasons for the insolvency and the directors’ actions. That increases the likelihood that you will receive a penalty, such as being made personally liable for company debts or being handed a directorship ban.
Can I dissolve a company with tax debts in Scotland?
Can I dissolve a company with tax debts in Scotland?
You might have heard of Company Dissolution or Strike Off as a way of closing your company. However, only solvent businesses can use this process. To dissolve your company, you would have to contact HMRC to settle your tax debts and repay all your other creditors in full. Only then could you apply to Companies House to strike your business off the official register.
If you try to dissolve a company without paying your tax debts, HMRC will formally object to your application. You could also face serious reprisals from the Insolvency Service, as it will be noted that you tried to use the strike-off process to avoid paying your debts.
Why close a company with HMRC debts via a Creditors’ Voluntary Liquidation?
Why close a company with HMRC debts via a Creditors’ Voluntary Liquidation?
If you want to close your limited company and have tax debts you cannot pay, you have two options. You can:
- put the company into liquidation voluntarily via a Creditors’ Voluntary Liquidation (CVL); or
- wait for HMRC or another creditor to force you into Compulsory Liquidation.
There are several benefits associated with taking control of the situation by initiating a CVL:
- You can decide when you enter liquidation and appoint your choice of liquidator.
- The liquidator will still scrutinise your conduct, but there’s less risk that director misconduct allegations will be made against you.
- If you have worked as an employee of the company for a minimum of 16 hours a week for at least two years, you could be eligible for company director redundancy pay.
If you’re unsure of your next steps or want to know more about how to close a limited company with HMRC debts, please contact the team at Scotland Liquidators. We offer free same-day consultations and provide expert guidance and support throughout the process.
