If your company is dissolved, you are still responsible for any taxes it owes. This includes corporation, income, and value-added tax (VAT). The process for paying these taxes will vary depending on the type of tax owed. In addition, you may need to work with insolvency professionals (such as these insolvency practitioners in the UK) to ensure that all taxes are paid in full.
What Is Liquidation?
If your company is insolvent, the first step is to put it into liquidation. This is a process where all the company’s assets are sold off to pay its debts. Once the company’s assets have been liquidated, any remaining debt is written off. Insolvency means that the company cannot pay its debts as they become due.
Once your company is liquidated, you need to contact HM Revenue & Customs (HMRC) to let them know. You also need to provide them with information about the company’s assets and liabilities.
Types of Liquidation
There are two types of liquidation, including:
Compulsory liquidation happens when a company cannot pay its debts, and a court orders it to be liquidated.
Voluntary liquidation happens when the directors of a company decide that the company should be liquidated. There are two types of voluntary liquidation, such as:
- Members’ Voluntary Liquidation (MVL). A members’ voluntary liquidation can only happen if the company is solvent. This means the company can pay all its debts within 12 months.
- Creditors’ Voluntary Liquidation (CVL). A creditors’ voluntary liquidation happens when the directors of a company decide to liquidate the company, but the company is insolvent. The CVL procedure involves appointing an insolvency practitioner to act as the liquidator.
Do You Need to Pay Tax After Liquidation?
After the company is dissolved, you are still responsible for paying any taxes it owes. This includes:
- Corporation tax
- Income tax
- Value added tax (VAT)
The process for paying these taxes will vary depending on the type of tax owed. For example, you must file a final corporation tax return if your company is liable for corporation tax. You need to contact HMRC to arrange a payment plan if you owe income tax.
What Happens if You Don’t Pay Tax?
If you don’t pay the taxes that your company owes, you may be personally liable for the debt. This means that HMRC could take legal action against you to recover the money owed. In severe cases, you may even be sent to prison.
It’s important to note that HMRC is usually willing to negotiate payment plans for companies in liquidation. However, you need to contact them as soon as possible to discuss your options.
Alternatives to Company Liquidation
If you are facing financial difficulties, there are alternatives to company liquidation. These include:
Entering into a Company Voluntary Arrangement (CVA)
This is an agreement between a company and its creditors to repay all or part of the money that the company owes.
Administration and pre pack administration is a process where an administrator is appointed to manage the affairs of a company. The administrator tries to rescue the company and pay off its debts.
Receivership happens when a receiver is appointed to manage the affairs of a company. The receiver will try to sell the company’s assets to pay its debts.
If your company is dissolved, you are still responsible for any taxes it owes. This includes corporation, income, and value-added tax (VAT). The process for paying these taxes will vary depending on the type of tax owed. In addition, you may need to work with an insolvency practitioner to complete the liquidation process.