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Is My Company Insolvent If It Can’t Afford To Pay HMRC?

If your company cannot pay its bills, it has entered cash flow insolvency.

Failing to pay HMRC is a serious issue that could lead to enforcement measures by the tax authority to recover the debt unless you act quickly.

If your company is insolvent, it might need to cease trading immediately. However, you should consult a licensed insolvency practitioner (IP) for professional advice on how to proceed.

Failing to remit payments to HM Revenue and Customs (HMRC) may prompt stringent enforcement actions from this tax authority to reclaim the outstanding debts.

To avoid such repercussions, addressing these financial challenges swiftly and decisively is imperative.

Options for Companies Struggling to Pay HMRC Debts

If your company is struggling to pay its HMRC debts, it is essential to explore all available options to address the situation.

One such option is the Time to Pay Arrangement (TTP), which allows your company to settle its liabilities in instalments over a specified period.

Additionally, formal and informal solutions, such as a Company Voluntary Arrangement (CVA) or Debt Relief Order, may help your company manage its debts.

By contacting HMRC and discussing your company’s financial situation, insolvency practitioners can assess its viability and negotiate on behalf of your business and other creditors others’ behalf to find the most suitable solution.

These options can provide your company with the breathing room it needs to address its financial difficulties and work towards a solution.

Time to Pay Arrangement (TTP)

The Time to Pay Arrangement (TTP) is an agreement between a business and HMRC that facilitates the repayment of taxes over an extended period, typically up to 12 months.

This arrangement allows your company to spread its tax payments over a longer period, making the afford to pay them more affordable and manageable.

To apply for a TTP, your company must contact HMRC and discuss its financial situation. HMRC will then assess your company’s ability to make payments and the legal obligation to pay and make a decision regarding the arrangement.

A TTP is a practical solution for companies facing temporary financial difficulties or specific issues that can be rectified.

By entering into a TTP, your company can avoid legal actions such as asset seizures or winding up petitions and work towards resolving its financial issues.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a formal insolvency process whereby an insolvent company can repay its creditors over a fixed period of time.

It is a legally binding agreement between the company and its creditors, which can provide a practical solution for companies struggling to pay their HMRC debts.

A CVA payment plan, for example, allows your company to consolidate its debts and make payments to a creditor or a former creditor by paying its bills in a single, affordable payment each month.

While a CVA may not be suitable for all companies and often involves various restrictions, it can provide a viable path to financial recovery for those that qualify.

By entering into a CVA, your company can work towards resolving its financial issues and ultimately return to profitability.

Creditors’ Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation (CVL) is an insolvency process that offers companies that cannot be rescued the opportunity to minimise creditor losses and fulfil their legal obligations as company directors.

Under this process, a company’s assets are liquidated, and the proceeds are used to repay the creditors. UK Liquidators can provide advice and independent guidance on CVL to ensure the best course of action is taken.

A CVL may not be the most desirable outcome for your company, but it can provide an orderly and legal way to deal with your company’s debts and bring closure to an insolvent company.

By opting for a CVL, your company can fulfil its legal obligations and minimize the impact on its other creditors too.

The Role of Insolvency Practitioners

Insolvency practitioners are licensed professionals responsible for overseeing the insolvency process of a company.

They evaluate the financial standing of the company, provide guidance on the most suitable course of action, and administer the insolvency process.

By seeking the assistance of an insolvency specialist or practitioner, companies in financial distress can ensure they take the most appropriate steps to address their financial issues and work towards a solution.

In addition to offering advice and guidance on the insolvency process, insolvency practitioners can also provide counsel on the legal and financial effects of insolvency and assist in negotiations with HMRC.

Their expertise can prove invaluable in navigating the complexities of insolvency and ensuring the best possible outcome for your company.

Assessing Company Viability

Evaluating a company’s viability is a crucial step in determining the most appropriate course of action to address financial difficulties.

This process involves analysing financial statements, cash flow projections, market trends, and competition.

By assessing the viability of long-term survival and the capacity to maintain profitability over a period of time, insolvency practitioners can provide invaluable guidance on whether your company can recover from its financial issues or if more drastic measures are required.

By consulting with an insolvency practitioner, you can gain an objective assessment of your company’s financial situation and receive expert advice on the most suitable course of action.

This can help you determine whether your company is in a position to bounce back or if insolvency procedures are the most appropriate way forward.

Negotiating with HMRC

When facing financial difficulties, engaging in negotiations with HMRC can be a daunting task. However, insolvency practitioners can serve as a third-party mediators, offering their expertise and experience to help achieve the most favourable outcome for your company.

They can assist in negotiations to reduce the amount owed or extend the payment period, providing your company with much-needed breathing room to address its financial issues.

By working with an insolvency practitioner, your company can benefit from their expertise in dealing with HMRC and ensuring the best possible outcome in negotiations.

This can help your company avoid more severe consequences, such as legal actions, asset seizures, or winding up petitions, and work towards resolving its financial difficulties.

Director Responsibilities and Personal Liability

As a company director, understanding your responsibilities and potential personal liabilities is crucial when dealing with insolvency and HMRC debts.

Directors are responsible for the financial operations of the company and can be held personally liable for any debts the company incurs.

In cases of suspected serious misconduct, such as trading with HMRC monies and evading taxes or tax), directors may be held personally liable for the company’s debts.

To avoid the potential personal consequences of insolvency and HMRC debts, it is essential to be proactive in addressing your company’s financial difficulties and seek professional guidance from an insolvency practitioner.

Their expertise can help you navigate the complex world of insolvency and ensure that you fulfil your legal obligations as a company director.

Misconduct and Fraudulent Trading

Wrongful and fraudulent trading are serious offences that can result in significant consequences for company directors.

Wrongful trading occurs when a director continues to trade while the company is insolvent, thereby worsening the creditor’s position.

This can result in disqualification for up to 15 years, as well as financial fines and penalties.

Fraudulent trading, on the other hand, is defined as a director deliberately taking action to prevent the payment of company liabilities.

The repercussions of fraudulent trading may include criminal penalties, monetary fines, and director disqualification.

To avoid these consequences, it is crucial for directors to be proactive in addressing their company’s financial difficulties and seek professional guidance from an insolvency specialist.

Disqualification and Penalties

Disqualification is the process by which a person is barred from taking on the role of director of a company for a predetermined period, due to reasons such as fraud, trading while insolvent, and failing to aid the appointed Insolvency Practitioner.

If a company attempts to dissolve without notifying HMRC, the directors may be subject to prosecution and disqualification.

To avoid disqualification and other potential penalties, it is essential for directors to be proactive in addressing their company’s financial difficulties and seek professional guidance from an insolvency practitioner.

Their expertise can help you navigate the complex world of insolvency and ensure that you fulfil your legal obligations as a company director.

HMRC Debt Recovery Process

If your company struggles to pay its HMRC debts, it is essential to be aware of the HMRC debt recovery process.

This process involves sending chase letters and enforcement notices to inform the taxpayer of the unpaid tax debt still owed to HMRC. Failure to act on these notices may lead to further legal actions, including the involvement of HMRC tax debt collectors.

Fortunately, companies experiencing difficulty paying their HMRC debts have options available, such as a Time to Pay Arrangement (TTP), Company Voluntary Arrangement (CVA), or Creditors’ Voluntary Liquidation (CVL).

These options can provide your company with the breathing room it needs to address its financial difficulties and work towards a solution.

Chasing Letters and Enforcement Notices

HMRC chasing letters are correspondence issued when a company has an outstanding debt, typically related to unpaid PAYE or National Insurance.

These letters form part of the debt management process and may be followed up with enforcement actions if the debt is not settled.

Enforcement notices are documents issued by HMRC when a company has not paid a debt. These notices may require full payment of the debt or payment arrangement in instalments payments.

If the debt remains unpaid despite HMRC’s chasing letters and enforcement notices, they may take further steps, such as seizing assets or issuing a winding-up petition.

To avoid these repercussions, it is vital to act quickly and explore the available options, such as a Time to Pay Arrangement (TTP), Company Voluntary Arrangement (CVA), or Creditors’ Voluntary Liquidation (CVL).

Legal Actions and Winding Up Petitions

In addition to chasing letters and enforcement notices, HMRC may take legal action against individuals or companies who fail to pay their tax bills.

One possible outcome of unpaid HMRC tax debts is the issuance of a winding-up petition in court, which could result in the liquidation of your company and its subsequent closure.

However, bankruptcy is not the only option for companies in financial distress. As mentioned earlier, there are insolvency plans such as the Administration and a Creditors Voluntary Arrangement (CVA) that HMRC may agree to, allowing your company to pay its debts out of future profits.

By exploring these options, your company may be able to afford the funds to avoid liquidation and work towards a more stable financial and business future.


In conclusion, understanding the signs and consequences of insolvency, as well as the available options for companies struggling to pay HMRC debts, is crucial for both the survival of your company and the fulfilment of your legal obligations as a director.

By seeking professional guidance from an insolvency practitioner, you can ensure that your company takes the most appropriate course of action.

Whether that is negotiating a Time to Pay Arrangement (TTP), entering a Company Voluntary Arrangement (CVA), or opting for Creditors’ Voluntary Liquidation (CVL).

Remember, the sooner you act, the better the chances of finding a suitable solution and steering your company towards a stable financial future.

Frequently Asked Questions

What happens if a limited company Cannot pay its tax bill?

If your company is unable to pay its corporation tax bill, HMRC may provide a Time to Pay (TTP) arrangement for repayment of the arrears.

This full tax year allows businesses extra time to repay their tax debts and can help with cash flow issues during times of financial difficulty.

The TTP arrangement is an agreement between HMRC and the business and is tailored to the individual circumstances of the business.

It is important to note that the TTP arrangement is not a loan, and the business must still afford to pay back the full amount of the loan.

At what point does a company become insolvent?

At a certain point, a company becomes insolvent when they are unable to make payments on time or in full.

This can occur when liabilities exceed the value of assets, or when outgoings fall due and cannot be met.

These signs of insolvency must be taken seriously and addressed quickly in order to prevent further financial distress.

Can you liquidate a company with HMRC debt?

Unfortunately, if your business owes more than £750 to HMRC in tax arrears, you may not be able to avoid liquidation.

HMRC has the authority to commence a winding-up petition against your company, meaning that it is at risk of being dissolved.

It’s wise to contact HMRC as soon as you are aware that debt exists, as the earlier this can be addressed, the better.

Can a company be dissolved if it owes money?

A company can be liquidated or dissolved if it owes money. Depending on the company’s liquidation, size and amount of debt, the business may need to enter into an insolvency procedure in order to legally dissolve the company.

In such cases, creditors cannot afford to pay and will be paid out from the assets of the company before it is closed down.

Business Debt Information

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