When a company falls behind with HMRC, directors are often worried that HMRC can simply force the business to stop trading. This is a common concern, particularly where VAT, PAYE or Corporation Tax arrears have built up and the company is receiving letters, calls or threats of enforcement.

HMRC cannot usually walk into a business and immediately order it to stop trading. However, HMRC does have significant powers to recover unpaid tax, and if those powers are not dealt with properly, the result can be that the company is no longer able to continue trading.

Molly Monks F.I.P.A of Parker Walsh, a licensed Insolvency Practitioner, regularly advises directors who are under pressure from HMRC and unsure whether they can continue to trade.

HMRC Cannot Simply Close the Doors

HMRC is a creditor of the company. If the company owes tax, HMRC can take recovery action in the same way as other creditors, although it also has specific enforcement powers available to it.

In most cases, HMRC cannot simply force a company to stop trading without following a legal process. The company remains under the control of its directors unless and until a formal insolvency process begins, or the directors decide that trading should stop.

However, directors should not ignore HMRC pressure. While HMRC may not be able to immediately shut the business down, it can take action that makes continued trading very difficult.

What Action Can HMRC Take?

HMRC can issue demands for payment, instruct enforcement agents, seek security deposits in certain cases, issue penalties and interest, object to strike-off, or present a winding-up petition.

A winding-up petition is one of the most serious forms of action HMRC can take. If a winding-up order is made by the court, the company will enter liquidation and the directors will lose control of the business.

At that stage, trading will usually cease unless there are exceptional circumstances and the appointed office-holder considers that limited trading is appropriate. For most companies, a winding-up order means the end of trading.

Can My Company Continue Trading If It Owes HMRC?

A company can continue trading while it owes HMRC, provided the directors are acting responsibly and the company is not worsening the position for creditors.

The key question is whether the company can pay its ongoing liabilities as they fall due. If the company is continuing to trade, it must be able to meet new tax, wages, supplier payments and other trading costs.

If the company is taking new work, collecting money from customers, but not paying ongoing HMRC liabilities, directors need to be careful. Continuing to trade while debts increase can create personal risk for directors, particularly if the company later enters liquidation.

Time to Pay Arrangements

In some cases, HMRC may agree to a Time to Pay arrangement. This allows the company to repay arrears over an agreed period, while continuing to meet ongoing liabilities.

A Time to Pay arrangement can be a useful solution where the company is viable but has suffered temporary cash-flow pressure.

The proposal must be realistic. HMRC is unlikely to accept an arrangement that the company has no reasonable prospect of maintaining. It is often better to put forward a sensible and affordable proposal than to agree to payments that may fail after only a short period.

Parker Walsh can assist by reviewing the company's financial position, preparing a proposal and dealing with HMRC on behalf of the directors.

When Trading May Need to Stop

There are situations where it may not be appropriate for the company to continue trading.

If the company cannot pay ongoing liabilities, has no realistic prospect of recovery, is relying on new customer money to fund old debts, or is making the creditor position worse, the directors should take immediate advice.

Stopping trade does not always mean that liquidation is the only option, but it may mean the directors need to consider formal insolvency or restructuring advice.

Molly Monks F.I.P.A of Parker Walsh can review the position and explain the available options, which may include a Time to Pay arrangement, Company Voluntary Arrangement, administration, liquidation or dissolution, depending on the circumstances.

Directors Must Act Carefully

When HMRC pressure increases, directors should avoid making decisions based on panic. It is important not to ignore correspondence, promise payments the company cannot afford, or continue trading without understanding the risks.

Directors have duties to the company and, when insolvency is a concern, they must also consider the interests of creditors.

Taking advice early can help directors understand whether the company can continue trading safely, whether HMRC may accept a repayment proposal, or whether a more formal process is required.

Speak to Parker Walsh

HMRC cannot normally force a company to stop trading overnight, but it can take legal and enforcement action that may ultimately bring trading to an end.

If your company owes money to HMRC and you are worried about whether you can continue to trade, it is important to seek advice before the position escalates.

Molly Monks F.I.P.A of Parker Walsh is a licensed Insolvency Practitioner and provides clear, confidential advice to directors dealing with HMRC arrears, creditor pressure and company debt.

At Parker Walsh, we will review your circumstances and explain the most practical options available.

FAQs

Can HMRC close my company down without going to court?

No. In most cases HMRC must follow a formal legal process, such as a winding-up petition, before a company can be forced to stop trading.

What happens if HMRC presents a winding-up petition?

If the court grants a winding-up order, the company enters liquidation and the directors lose control of the business, usually bringing trading to an end.

Can I keep trading while my company owes HMRC money?

Yes, provided the company can still meet its ongoing liabilities as they fall due and is not making the position worse for creditors.

What is a Time to Pay arrangement?

It is an agreement with HMRC that allows a company to repay tax arrears over an agreed period while keeping up with current liabilities.

What should I do if HMRC is putting pressure on my company?

Seek advice early from a licensed insolvency practitioner such as Molly Monks F.I.P.A of Parker Walsh, rather than ignoring correspondence or making promises the company cannot keep.

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