In the UK, when a company is liquidated, the directors are responsible for paying the company’s taxes. The government may also ask the directors to pay back any money the company owes to HM Revenue and Customs (HMRC). If the directors can’t pay, they may be personally liable for the debts.
If you are a company director, it’s best to seek advice from the experts, such as Insolvency Online, on how to deal with liquidation. Click here for more information.
What Is Liquidation?
It is selling a company’s assets and using the money to pay its debts. If the company doesn’t have enough money to pay its debts, the directors may be asked to pay back any money the company owes to HMRC.
When a company is wound up, the liquidation process can take many months or even years. This means that the company’s tax affairs will need to be managed carefully during this time.
Types of Liquidation
There are three types of liquidation, such as:
Members’ Voluntary Liquidation (MVL)
A company is only eligible for MVL if its solvent, meaning it can pay its debts in full within 12 months. The company must pass a solvency test to confirm this. An IP is appointed to manage the process and realizes the company’s assets, which are then used to pay off creditors. Any money left over goes to the shareholders. It’s best to get company insolvency advice if you don’t know where and how to start.
Compulsory Liquidation
This is when the court orders the liquidation of a company. It’s usually because the company owes money to HMRC or has failed to pay its creditors. The Official Receiver (OR) is appointed to manage the process and realizes the company’s assets, which are used to pay off creditors. Any money left over goes to the shareholders.
Creditors’ Voluntary Liquidation (CVL)
It is when a company is insolvent, and its shareholders agree to appoint an IP to oversee the process. The company’s assets are sold and used to pay creditors. Any money left over goes to the shareholders.
While in liquidation, a company is not allowed to carry on business except to wind down its affairs or sell its assets. Be sure to get advice for creditor’s voluntary liquidation for more information.
How to Liquidate a Company?
If you’re thinking about how to liquidate your company, the first step is to seek professional advice. This is because there are many things to consider before taking any action, such as:
- The type of liquidation you want to use
- The company’s financial situation
- Your financial situation
- Your company’s obligations to creditors and employees
- The tax implications of liquidation
After this, you can start the process of liquidation by following these steps:
- Appoint an IP. If you’re using CVL, you need to appoint an IP. Pass a resolution at a shareholders’ meeting, and the IP will then take control of the company and its assets. The court will appoint an OR to manage the process if you’re using compulsory liquidation.
- Notify HMRC and other creditors. The next step is to notify HMRC and any other creditors that the company is liquidating. Send them a letter or email explaining your situation and what will happen next.
- Realize the company’s assets. The IP will then realize the company’s assets, such as selling its property, stock, and equipment. The proceeds are used to pay all creditors.
- Pay creditors. The IP will contact creditors and arrange for them to be paid. They will also send a final report showing how much each creditor has been paid.
- Wind up the company. Once the debts have been paid, the IP will apply to the court to have the company wound up. As a result, it will no longer exist, and its assets will be distributed to shareholders.
What Happens if You Don’t Pay Taxes?
If you don’t pay the taxes owing to HMRC, they may take legal action to recover the money. This could include sending bailiffs to your home or business premises, taking money from your bank account, or seizing your assets.
Also, you may be prosecuted for tax evasion, which is a criminal offense. You could face a fine or even a prison sentence if you’re found guilty.
You should consider getting professional advice if you’re facing problems with paying your taxes. There are options available that could help you avoid legal actions.
The Bottom Line
Liquidating a company is a serious decision that should not be taken lightly. Be sure to seek professional advice before taking action, as there are many things to consider. Once you’ve decided to proceed, the process is relatively straightforward.
The IP will manage the process and realize the company’s assets used to pay off creditors. Any money left goes to the shareholders.