If you dissolve a company with outstanding debts, can HMRC chase your closed company for repayment of its tax liabilities?

We take a look at the potential outcomes of dissolving a company with tax debts and explain the action HMRC could choose to take against you. 

Can HMRC Investigate or Chase a Dissolved Company?

If a company is dissolved with outstanding tax debts, HMRC can indeed chase the payment. Dissolution is often seen as a cost-effective way to close a solvent, debt-free company, but it is not suitable for insolvent businesses.

If tax debts were owed prior to dissolution, HMRC could still chase for payment, applying to reinstate the company if necessary. The process demands that all creditors, including HMRC, be notified of the intent to voluntarily strike off the company.

If the process is completed without settling HMRC’s debt, it can have serious implications for the company directors.

I Dissolved a Company with Tax Debts – Can HMRC Take Action?

If you’ve recently dissolved a company while it still had outstanding tax debts, it is crucial to understand the potential legal repercussions and the actions that HMRC may take.

Here’s a detailed look into what you should expect and consider:

HMRC’s Authority and Your Dissolved Company

HMRC has the right to pursue the payment of tax debts even if a company has been dissolved. If the company was dissolved with unpaid tax debts, HMRC could apply to have it reinstated to the Companies House register. Once restored, the company is treated as though the dissolution never occurred, and HMRC can initiate an in-depth investigation into the company’s affairs and your conduct as a director.

The Legal Obligation to Notify Creditors

The dissolution process mandates that you inform all creditors, including HMRC, of your intentions to voluntarily dissolve the company. If this was not done, or if tax debts were unpaid and the dissolution was processed, the situation could become legally complex.

Reinstatement Process and Its Implications

Should HMRC pursue reinstatement, they would apply through the courts, and if successful, your company’s name would be restored to the Companies House register.

This legal action could expose the company and its directors to a full investigation by HMRC. Such an investigation is a serious matter, and the consequences could be significant for both the company and its directors.

Personal Liability and Penalties

It’s also worth noting that if HMRC believes that wrongful or fraudulent activities have occurred, you as a director may be personally liable for some or all of the outstanding tax debts. Penalties and interest charges from the date of dissolution might be applied.

Consulting Legal Experts

Given the gravity of the situation and potential legal implications, it is strongly advisable to seek expert advice. Please do make contact by phone, email or livechat to get some impartial professional advice.

Chasing a Dissolved Company for Tax Debts: HMRC’s Actions

If you’re considering the aftermath of dissolving a company with tax debts, it’s imperative to be aware of the extent to which HMRC can pursue the matter. Here’s a closer look at their process:

Duration of Pursuit

HMRC has the authority to chase a dissolved company for up to six years from the date of dissolution. If there’s a suspicion of fraud or negligence on the part of the directors, this period can extend up to 20 years.

Reinstatement through Courts

The initial step HMRC may take is to apply for the company’s reinstatement through the courts. If this application is successful, the company name will be restored to the Companies House register, and the business will be treated as if dissolution never took place.

Investigation into Company’s Affairs

Once restored, HMRC can launch a comprehensive investigation into the company’s affairs, as well as the conduct of directors. This is not merely a matter of recouping the tax debt; it’s a profound legal examination that can have severe consequences for company directors.

How Does HMRC Investigate a Dissolved Company?

Should HMRC decide to investigate a dissolved company, its scrutiny is often thorough and focused. Here’s an insight into how they might proceed:

Investigation into Various Issues

HMRC’s investigation might uncover several issues, such as:

  • Preferential payments, where directors may have repaid other creditors but not HMRC.
  • Breach of director fiduciary duty or misfeasance, where a director may have acted in their own interests rather than those of the company’s creditors.
  • Fraudulent activity, such as knowingly increasing the financial losses of creditors prior to dissolving the company.

Potential Risks for Directors

These findings can place company directors at serious personal risk of sanctions and financial penalties. Directors may be held accountable for actions leading to the company’s dissolution with unpaid tax debts.

Personal Liability: How Can Directors Be Affected?

When a company is dissolved with unpaid tax debts, the situation may lead to personal ramifications for directors. Here’s a detailed examination of how they can be affected:

Director Disqualification

HMRC may apply to have a director disqualified for a period of up to 15 years if they are found to have acted wrongfully or negligently.

Personal Liability Notices (PLNs)

Directors might be issued with PLNs, making them personally liable for the company’s unpaid taxes. This is a significant legal matter and may result in personal financial hardship.

Criminal Investigations

In cases of serious fraud or misconduct, criminal investigations may ensue, leading to fines or even imprisonment.

Can HMRC Reopen a Closed Company?

HMRC has the power to reopen a closed company via restoring it to the register with a court order[1]Trusted Source – .GOV – Claiming Money or Property from a Dissolved Company if it feels debts have been evaded. It can then issue a winding up petition to the restored company, which could mean compulsory liquidation via the court.

How Far Back Can HMRC Investigate a Dissolved Company?

How long can HMRC chase a debt? If the company filed its accounts and paid its taxes in good time while it was trading, HMRC can take action against the company up to six years after the date of dissolution. However, if serious fraud or negligence is alleged, HMRC can still take action up to 20 years later.  

Precautions Before Dissolving a Company

Recognising the potential complications with HMRC, taking appropriate precautions before dissolving a company is imperative:

Settle Outstanding Debts

Clearing any outstanding tax debts should be a priority. If this is not feasible, seek professional advice on how to approach the situation.

Proper Communication with HMRC

Maintain open communication with HMRC, especially if the company is experiencing financial difficulties. Collaborative approaches often yield more favourable outcomes.

Legal and Financial Consultation

Utilising professional financial and legal consultation will ensure adherence to all relevant regulations and can help in navigating complex issues.

Quick Quote for Closing a Company

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – .GOV – Claiming Money or Property from a Dissolved Company