What happens if I cannot pay my company tax bill?

If your company cannot pay the tax it owes, it may be forced to close and directors could be held personally liable for the debts.

Where tax and VAT are fall into arrears and no action is taken, HM Revenue and Customs (HMRC) will start proceedings to wind up the business.

Unlike the action taken by other business creditors, winding up action is not started by HMRC to try and recover unpaid debt. Rather the focus is to ensure that the company is closed to prevent it from falling further into arrears.

If a winding up petition is granted by the court, the effect on the company and directors will be extremely serious. The business bank account will be frozen and trading severely restricted.

If wound up, the activities of the company directors will be investigated by the liquidator which could lead to them being held personally liable for company debt.

Option to defer tax

Given the serious implications of not being able to pay company tax, it is vital that as a director, you take action if you find your business in this situation.

A scheme that has helped thousands of businesses over the past 18 months is the HMRC time to pay scheme.

The scheme allows a company to defer the payment of its tax and or VAT liabilities for 3-6 months. This provides a significant breathing space especially if your cash payments are seasonal or have been delayed due to economic conditions.

Some good news in the budget this week was that Alistair Darling announced that the time to pay scheme will be extended until at least the end of the next parliament.

However, it is important to understand that the scheme only defers of tax liabilities. As such, it should only be considered if your cash flow problems are temporary.

When deferral is not enough

If the reason that your company debts are increasing is due to more fundamental business problems, deferring tax and VAT debts will not be the answer. By doing this you are simply moving the problem into the future and possibly making it worse.

In this situation, more direct action has to be taken to save the company.

There are a number of company debt management solutions which you can consider. The main solutions are company voluntary arrangement (CVA) and pre pack administration.

These solutions are designed to reduce or write off company debt and enable the business to renegotiate unfavourable financial agreements such as premises leases. In this way, an otherwise successful business is given the chance to succeed free from the legacy debts which are dragging it down.

If you find that your company is falling into arrears with tax and VAT debt it is vital that you take swift action to resolve the problem.

Deferring the debt using the HMRC time to pay scheme could be the answer if your cash is collected irregularly over the year. However, if your business has more serious problems, you should talk to a corporate insolvency expert about the different options available to save your company.

The most important thing is DO NOT WAIT until a winding up petition is issued. This will limit your options considerably.

Talk to us about business debt rescue options
http://www.company-debt.co.uk/cva-company-voluntary-arrangement.html
http://www.company-debt.co.uk/pre-pack-administration.html

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Business Debt Advice providing straight forward insolvency advice for businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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