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?

The answer is yes; HMRC can chase a dissolved company.

Even if the company is successfully dissolved, creditors, including HMRC, will still be able to pursue it through the courts to recover the money it is owed, and that could have negative consequences for you as a company director.

As part of the company dissolution process, a copy of the strike off application must be sent to all interested parties, including any outstanding creditors such as HMRC. The registrar will also publish a notice in the Gazette of the proposed dissolution, which will give all parties three months to object.

Sometimes, however, a company manages to complete strike off without creditor objection. This doesn’t mean the matter is now completed, however, as HMRC may become aware at a later date.

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

How Far Back Can HMRC Investigate a Dissolved Company?

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.  

What Action Can HMRC Take Against a Dissolved Company? 

If HMRC has reason to believe that the tax affairs of your dissolved company are not in order, it can apply to the court to restore the business to the Companies House register before carrying out a full investigation. Typically, this is not something HMRC will do unless there are substantial arrears or there is an ongoing investigation into the director or the other companies they may run. 

Once the company is restored to the register, HMRC will launch an investigation, which will scrutinise every aspect of the company’s operation. For this reason, the process can be very stressful and involve substantial accountancy fees to get all of the relevant paperwork in order. 

The investigation could uncover any number of things. For example, it could find that the director had made payments to other creditors but not HMRC after they knew the company was insolvent. That could lead to accusations of wrongful trading and company directors could be made personally liable for the repayment of the business’s debts. Alternatively, if acts of misfeasance or fraudulent trading are suspected, the penalties could involve personal liability for company debts, a directorship ban and even a custodial sentence.  

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.

Can HMRC Investigate Directors Who Have Dissolved a Limited Company with Debt?

If HMRC restores a dissolved company, via court order, it will be to force it into liquidation. As the correct method of closing down a company with debt, liquidation involves a third party – usually an insolvency practitioner (IP) – closing down the company and paying creditors in order of preference. As a part of this process, the IP will investigate the actions of directors in the period preceding insolvency to check for wrongful or fradulent trading, or other indications of misfeasance.

If it is found that the director knowingly dissolved the company as a means of avoiding tax debts, the IP has the power to hold the director personally liable for corporate tax debts, including potential fines and penalties. If the actions are deemed to be fraud, further sanctions – including directors disqualification – may be considered.

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.
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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