Voluntary Liquidation: What to Expect from HMRC
For limited company directors facing aggressive creditor pressure, choosing voluntary liquidation can be a tremendous relief. While protecting the company from further legal action, the choice to liquidate places the company in the hands of an insolvency practitioner (IP). The IP will close down the company and sell any assets to seek the best return for company creditors.
While voluntary liquidation can be chosen to close a solvent company in a tax-efficient manner (members voluntary liquidation), the common use of the term when directors of an insolvent company choose the process, is termed Creditors’ Voluntary Liquidation.
Voluntary Liquidation Vs Compulsory
One of the primary advantages to choosing creditors’ voluntary liquidation, rather than waiting to be compulsorily wound up is the level of directorial control. Choosing a CVL means you can find your own insolvency practitioner. Demonstrating you have taken a proactive role towards fulfilling your debt obligations is also beneficial, should there be investigations into directorial conduct.
What Happens in a Voluntary Liquidation?
Insolvent voluntary liquidation involves the sale of company assets for distribution to company creditors. It must be managed by a licensed insolvency practitoner, Once the liquidation is complete, the company will be dissolved.
How Long Does a Voluntary Liquidation Take?
A creditors’ voluntary liquidation usually takes around 14 days to complete, although it may take considerably longer if the company’s situation is complicated. That process is broken down into several stages:
- Meeting with an Insolvency Practitioner
- Liquidator Realises Assets. Reviews Creditor Claims, Deals With Staff
- Liquidator Carries Out Investigations into the Company Affairs
- Subsequent to the final meeting, the insolvency practitioner submits final paperwork to Companies House
- 3 months after the paperwork is submitted, the company is officially dissolved
What are Directors Responsibilities During Voluntary Liquidation.
We cover this topic fully in an article here, but the basic things to remember are to serve the interests of creditors at all times. The risk for directors of insolvent company’s is in continuing to trade when you know the company cannot meet its liabilities, or in putting your own or other members interests before those of creditors. These can lead to charges of wrongful trading, which is a civil offence.
What’s the Cost of Voluntary Liquidation?
Some company directors, aware of the businesses situation, delay putting their company into creditors’ voluntary liquidation for fear of not being able to pay for it. The important point to remember is that, assuming there are some company assets, any costs are taken from the liquidation itself. The only time directors would have to pay for the liquidation out of their own pockets is where the company assets fall below the basic cost of the liquidation, which is about £5000 + VAT. Obviously, this will vary depending on the complexity of the case.
What can you Expect from HMRC?
Where HMRC believe a company is insolvent or about to become insolvent, they may ask for a Security Bond. The Securities Team will serve a Notice of Requirement often with a Personal Liability Notice attached.
HMRC Field agents or even HMRC bailiffs will make visits to the family home, although, if it is company debt, personal assets cannot be taken. The business premises can also be visited to negotiate a settlement. Company assets can be ‘seized’ for company tax debts so be aware.
HMRC may issue a Statutory Demand for sole traders and partners but not limited companies.
In practical terms the tax debt will not go beyond the Enforcement & Insolvency Team. This is the most serious unit in the UK and is based in Worthing. Any communications from any of the above must be taken very seriously but Enforcement & Insolvency will resolve the issue – one way or another. This means collection or closure.
The favourite tool of HMRC is legal action which is the Winding up Petition and threat of it. Be aware if the tax debt has gone to the winding up stage you should pay the debt or seek professional help immediately. Enforcement & Insolvency do not make idle threats. The purpose of the Petition is not to collect the tax debt – the Petition is filed at Court to close the insolvent company.
Directors are often astonished that HMRC will write off the tax and simply close the company. But when you consider HMRC’s role of enforcement it makes more sense.
HMRC will usually continue any action against the company until the company has engaged a liquidator, or held the creditors meeting. It is very rare for HMRC to attend a Creditors’ Voluntary Liquidation meeting of creditors. So generally once the liquidation has started HMRC will usually leave the liquidator to act on their behalf.
As a footnote it is worth knowing HMRC and liquidators do monitor by law directors who are considered to be serial offenders. A serial offender may be a company director who closes a company leaving debts on more than two or more occasions. Please note closing a company with debts even by dissolution would still be included.