HMRC Liquidation.

Reasons for HMRC Liquidation.

There are several reasons why HMRC may pursue the liquidation of your company.

Unpaid tax

The most common reason is significant unpaid taxes, including VAT, PAYE, corporation tax and National Insurance contributions.

Failure to comply

Persistent non-compliance with tax obligations and failure to respond to HMRC’s efforts to recover the debts.

Suspicion of insolvency

If HMRC believes that your company is insolvent or becoming insolvent and cannot meet its debt obligations.

What is the process of HMRC Liquidation?

There are various steps taken by the HMRC to pursue the liquidation of your company.

1. Recovery attempts

HMRC will typically make several attempts to recover the debt before resorting to having your company liquidated. This will include sending payment reminders, imposing penalties and offering payment plans.

2. Statutory demand

If you fail to pay the debt after recovery attempts the HMRC will issue a statutory demand. This is a formal request for payment. Once this has been issued you will have 21 days to pay the debt or agree on payment terms.

3. Winding-up petition

Not responding to the statutory demand will result in HMRC filing a winding-up petition to the Courts. This petition, is a formal request to liquidate your company to recover the outstanding debt.

4. Court hearing

The court will meet to consider the winding-up petition. You will have the opportunity to present your case to the court to oppose the petition. However, if the court decides that you cannot pay your debt it will issue a winding-up order which forces your company into liquidation.

5. Appointment of Official Receiver

The court will appoint an Official Receiver who will begin the liquidation process and conduct investigations into the failure of the company.

In some cases, the Official Receiver will oversee the whole liquidation process, in other cases, a separate liquidator will be instructed to carry out the liquidation.

6. Asset liquidation

The official receiver or appointed liquidator will then take an inventory of all your company assets and sells them. The proceeds will be used to repay the HMRC and any other outstanding creditors in line with a strict legal framework to ensure the fair and correct distribution of funds.

Implications of HMRC Liquidation.

HMRC liquidation comes with various implications to you and your business

Business closure

Compulsory liquidation results in the complete closure of your business. All your operations will cease and any employees will be made redundant.

Asset liquidation

All your company assets will be sold to repay your creditors. This includes company-owned property, equipment and machinery.

Director disqualification

You and any other company directors will face a full investigation by the Official Receiver. If you are found guilty of misconduct or wrongful trading you could face disqualification from acting as a director in the future.

Legal and financial consequences

Compulsory liquidation has significant legal and financial consequences for all stakeholders including creditors, employees and shareholders.

How to avoid HMRC Liquidation.

HMRC liquidation can be a devastating outcome for any company director, but there are steps you can take to try to avoid it:

• Communication: Do not try and ignore the problem, engage with HMRC about your company’s financial struggles. Discuss payment plans or extensions to help prevent HMRC liquidation.
• Financial management: Implement good financial management practices to ensure you pay your tax bills on time and avoid accumulating debt.
• Seek professional advice: If you are in financial distress consult with an Insolvency Practitioner like The Liquidation Centre. Insolvency Practitioners can help assess your situation and provide you with advice and guidance on the next steps to try and avoid compulsory liquidation.