Can HMRC Investigate Closed Companies?
The answer is a resounding yes.
Many people assume that a company that has been dissolved and struck off the Companies House register is no longer liable for tax and debt demands. This is not true. If there is reason to think your company’s tax affairs are not in order, HMRC can restore your company to the register in order to carry out a full investigation.
There are a number of reasons why HMRC might investigate historical cases of tax evasion or underpayment – known as a ‘back duty enquiry’. Generally, HMRC won’t do so unless there is a large sum of money in arrears, or there is ongoing investigation into the tax affairs of the director(s) and their subsequent companies.
If you are facing a dissolved company investigation, it is key to get advice from a tax lawyer. Having worked as a tax solicitor and a tax barrister for 35 years, I cannot emphasise enough how important is it to get expert guidance and representation in these cases.
What’s Involved in a Tax Investigation for a Dissolved Company?
HMRC tax investigations are often very stressful – even if you have done nothing wrong. An HMRC enquiry into a dissolved company will meticulously probe into every aspect of your company’s economic affairs, making it costly and time consuming for anyone under investigation…
Accountancy fees to get your paperwork in order can be around £5,000, and it usually takes around 16 months to complete an investigation.
How Far Back Can HMRC Go in a Tax Investigation for a Dissolved Company?
An HMRC enquiry into a limited company can be launched after it has been dissolved, but there are specific time limits.
If your accounts and personal tax computations were filed within the correct time limits, HMRC has up to six years from the end of the tax year concerned to issue a ‘discovery assessment’ in cases of carelessness.
If there is an allegation of fraud or negligence (ie dishonesty), however, an investigation can be launched up to 20 years after closing your company.
Proving carelessness vs dishonesty is best handled by a tax lawyer – as it may protect you from investigations into long-closed company.
For this reason, it’s important to maintain both your corporate and personal / self assessment tax records for a minimum of six years after your company has been closed.
Can HMRC Demand Tax from a Dissolved Company?
Usually, directors of limited companies are not personally liable for unpaid taxes of dissolved companies.
However, where evidence shows that a failure to make payments was deliberate or the result of neglect or fraud, HMRC can demand tax arrears from the individual directors. This includes VAT, National Insurance, PAYE and corporation tax.
For example, if a business continues to make payments to connected creditors such as family or friends, but does not pay the tax owed to HMRC, the directors could have to pay HMRC from their personal funds. Or, if a company director keeps paying themselves dividends while failing to make tax payments, they could be made personally liable for their company’s debts.
Any interest and penalties are back-dated to the date of striking off.
What Happens if a Dissolved Company Owes Corporation Tax?
If a business is struggling financially, it will not usually be making a profit and no corporation tax will have to be paid.
However, there are cases where struggling businesses do build up corporation tax debts – and HMRC will try to recover these debts through enforcement action. In cases such as those mentioned above, the director(s) will be held personally liable for HMRC debts, including interest and penalties.
Anyone facing a dissolved company investigation should start by consulting a specialist tax lawyer. While it is possible to use tax calculators to work out your tax liability, there are many factors which might have prompted HMRC to bring your company back onto the register in order to investigate it.
It could be connected to a number of situations, including a legal claim against the limited company from other parties or HMRC investigations to more recent tax payments.
The complexities of HMRC investigations means it’s particularly useful to instruct a tax barrister, who can not only manage the case and ensure that HMRC is following due process, but can represent you in court if necessary.
Patrick has been advising on tax for over 35 years, first as a solicitor and latterly as a barrister. This experience has given me expertise in helping businesses negotiate the complexities of HMRC investigations. As a barrister, I represent companies in appeals against HMRC, and can offer advice on conditions and exceptions that could save you money.
For tax advice and representation in an HMRC investigation with one of the UK’s leading specialist tax advisers, please contact Patrick Cannon here.