What to Expect from HMRC During a Creditors’ Voluntary Liquidation
HM and Revenue’s role during a Creditors’ Voluntary Liquidation will vary from case to case. Generally, directors are relieved at the response from HMRC. Let’s look at why HMRC accepts the Voluntary Liquidation having often aggressively pursued the tax debt so far.
HMRC’s role is ‘set an example to the general tax paying public’
Her Majesty’s Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage.
What is generally not known is that as well as collecting taxes HMRC is also responsible for Enforcement. To be clear it is not HMRC’s role to punish, but to enforce. This is generally accepted to mean HMRC’s enforcement role is:
- To stop the tax debts escalating
- To set an example to the general tax paying public
- To close companies who are not paying due taxes
So, as you can see from above the Creditors’ Voluntary Liquidation can actually help HMRC achieve its aims.
Which departments are Involved in Closing Companies?
HMRC are split into very large disparate departments and often have a fragmented view of what tax is owed. What is certain however is that if tax is not paid the case will be escalated for further action.
As the case escalates up the HMRC hierarchy the departmental view of taxes owed improves. So, at the very top of the HMRC chain the relevant team/department will have a complete view of all tax owed.
The most Common HMRC Teams Involved in Voluntary Liquidation are:
- Debt Management & Banking Team
- Enforcement & Insolvency Team
- Fraud & Investigation Team
- Securities Team
What can you Expect from HM and Revenue?
Any of the above departments will vigorously pursue what tax is owed until the tax is paid or the company is closed.
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.