Limited companies in the UK are subject to corporation tax on their profits and must pay HMRC within nine months and one day of the business’s tax accounting period end. If a business cannot pay, there’s a tangible threat that HMRC will try to close it down if they believe it’s insolvent.

If this is the situation for your business, initially, you should get in touch with the tax body and let them know your company’s financial position. Failing to do so could worsen your position in the long term, so what options might be available to you?

A Company Voluntary Arrangement is a formal agreement between a company and its creditors whereby multiple debts are restructured. Your company then makes one affordable repayment each month.

The structure of a CVA can relieve some of the financial pressure that your company is experiencing and allow you to continue trading as normal. A proportion of the debts may also be written off at the end of the CVA, which typically lasts for 3-5 years.

Company administration is generally used by larger organisations that are experiencing severe creditor pressure, and fear that a winding-up petition may be imminent. The process provides an eight-week moratorium on creditor action to plan the company’s future.

The administrator may negotiate a Company Voluntary Arrangement, for example, or decide to restructure the business as a whole to improve cash flow and provide a solid foundation on which to trade in the future.

If the company has declined to such an extent that it can no longer trade, Creditors’ Voluntary Liquidation offers you the opportunity to meet your legal duties as the director of an insolvent company.

CVL results in permanent closure following the sale of assets and the funds generated are used to repay creditors as far as possible. As a director, you may also be eligible to claim redundancy pay using this option.

HMRC charges significant financial penalties for the late or non-payment of corporation tax and interest also accrues on the debt. This makes it increasingly difficult to repay the money owed as time goes on and it leaves your company at risk of enforced closure.

It’s highly advisable to seek professional assistance when you can’t meet your company’s corporation tax liability. Please get in touch with Company Closure to arrange a free, same-day consultation so we can quickly advise on the best way forward and negotiate with HMRC on your behalf where appropriate.