HMRC can chase a dissolved company for outstanding tax debts.

In this guide, we will delve into the various scenarios, legal implications, and potential consequences for company directors when a business is dissolved with unsettled tax liabilities.

Can HMRC Chase You if You Dissolve a Company with Tax Debts?

Yes, HMRC can chase or investigate you if dissolve company with outstanding tax debts. Dissolution is the process of closing a company down, but it is not suitable for insolvent businesses.

If a company is dissolved with outstanding tax debts, HMRC can apply to reinstate the company in order to investigate its affairs and chase the debt.

HMRC has six years from the date of dissolution to chase a dissolved company for tax debts. If HMRC believes that fraud has taken place or that the directors have been negligent, they can chase the debt for up to 20 years.

Why would a dissolved company be investigated?

A dissolved company may be investigated by HMRC if there are suspicions of unpaid tax liabilities or fraudulent activity prior to its dissolution

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

If you have dissolved a company while it still had outstanding tax debts, you’re likely concerned about the actions HMRC may take against you and what legal missteps could have brought you to this point.

HMRC could consider the following steps:

  1. Reinstatement of the Company: If you’ve dissolved the company with tax debts still pending, HMRC could have already applied to the courts for reinstatement. In this scenario, your company would be put back on the Companies House register as if the dissolution had never occurred.
  2. Investigation: Subsequent to the reinstatement, HMRC has the prerogative to initiate a thorough investigation into the financial activities of the company and your conduct as a director.
  3. Personal Liability: Based on their findings, you could be held personally accountable for the outstanding tax debts, along with penalties and interest charges from the date of the dissolution.

Of course, HMRC will only choose that path if they feel the company has not followed correct protocol in one of the following areas:

  1. Failure to Notify Creditors: The law requires you to inform all creditors, including HMRC, of the intent to dissolve the company. Neglecting this is a major legal misstep.
  2. Unsettled Debts: Proceeding with the dissolution without clearing tax debts is another legal failing that opens you up to the repercussions mentioned above.

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 live chat to get some impartial professional advice.

How Does HMRC Investigate a Dissolved Company?

HMRC can investigate a dissolved company in a number of ways, including:

  • Reviewing the company’s records. This could include the company’s accounts, tax returns, and other financial records.
  • Contacting the company’s directors and other officers. HMRC may ask them questions about the company’s finances and how it was run.
  • Interviewing employees and other suppliers. HMRC may want to get their perspective on the company’s finances and how it was operated.
  • Searching the company’s premises. HMRC may have a warrant to search the company’s premises for evidence of wrongdoing.

If HMRC believes that the company has committed fraud or other serious wrongdoing, they may refer the case to the police or other law enforcement agencies.

Here are some specific examples of the types of things that HMRC might look for when investigating a dissolved company:

  • Evidence of fraudulent trading, such as falsified invoices or accounts.
  • Evidence of tax evasion, such as hidden income or assets.
  • Evidence of Phoenix trading, where the directors of a dissolved company set up a new company to continue trading in order to avoid paying their debts.

Can Directors Be Personally Liable if HMRC Investigates a Dissolved Company?

Yes, directors can be personally liable if HMRC investigates a dissolved company with outstanding tax debts

The personal ramifications may extend to financial penalties, disqualification as a director, or even criminal charges in severe cases.

  1. Personal Liability Notices (PLNs): Directors could receive PLNs making them personally responsible for the company’s unpaid tax liabilities.
  2. Director Disqualification: HMRC may seek to disqualify you from acting as a director for up to 15 years if they find evidence of wrongful or fraudulent activities.
  3. Criminal Investigations: In extreme cases involving severe fraud or misconduct, criminal investigations could ensue, leading to potential fines or imprisonment.

What Triggers Personal Liability?

  1. Failure to Comply with Legal Obligations: Not notifying creditors about the dissolution or proceeding with the dissolution despite unpaid debts can make you personally liable.
  2. Fraudulent or Wrongful Activities: Personal liability may also be triggered if you, as a director, are found to have engaged in wrongful or fraudulent actions that resulted in financial losses to creditors.

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.  

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References

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

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