HMRC’s objections to a strike-off application can be disappointing for directors who are genuinely trying to close down a failed venture and not deliberately avoiding paying tax.
However, the process is required to prevent unscrupulous individuals from trading and subsequently allowing their company to be struck off by not responding to correspondence from Companies House and in this way avoiding paying tax owed.
What Does Company Strike off Mean?
Striking Off is the correct term for applying to have a company removed from the register at Companies House. Before making a strike-off application, directors must close down the company legally.
This formal process involves announcing plans to interested parties, such as shareholders and creditors as well as to HMRC. Once the strike-off application has been completed, a copy must be sent to shareholders, creditors, employees, etc, within seven days to avoid a penalty and possible prosecution.
Why would HMRC Object to a Company Strike Off Application
If HMRC is one of the company creditors and isn’t notified, it’s highly likely that any outstanding tax liabilities will still emerge as Companies House publishes the details of all companies that have filed a strike-off application in The Gazette to alert creditors to companies that will be struck off three months after the date of the notice.
Notice of Striking off Action Suspended
Once alerted, HMRC will send a warning letter to directors, notifying them that it has raised an objection to the strike-off application. Therefore, striking off a company is only feasible when a company is up to date with its corporation tax arrears or VAT obligations.
When a Struck off Company Owes Money, How far will HMRC go to Recoup the Debt?
How far HMRC is willing to go to pursue payment depends on how much is owed by the company, whether the taxman can prove that the money is owed to the company by other parties, such as the directors, and whether the collection of the debt would result in HMRC being paid from the funds.
If the amount owed by the company is a small amount, the taxman is highly likely just to write it off.
What is Involuntary Strike-off?
When a company hasn’t been trading for three months or longer and has failed to file accounts, it is classed as “dormant” and struck off from the Companies Register. In an involuntary strike-off, HMRC also sends a letter to the company, stating that it is raising an objection to the strike-off because the company hasn’t met all of its tax obligations.
HMRC will not permit the company to be struck off until it makes these payments. Companies House decides whether the striking-off will proceed and HMRC has to provide evidence that it is actively pursuing the debt. In this scenario, Companies House suspends the striking-off process and monitors the application every few months by contacting HMRC at each stage to ensure that it is still chasing payment.
What to do if you Receive an Objection from HMRC
Once directors receive a letter from HMRC, notifying the company that it is objecting to the strike-off, they need to pay the tax arrears immediately. If there is a disagreement regarding the amount of tax owed, directors should contact HMRC immediately to discuss this further.
However, directors who intend to settle their tax bill should be cautious with the funds they use as the company may be deemed to be trading and then a strike-off application would be denied. One of the requirements of the process is that the company is inactive for a certain period of time before it is removed from the Register.
Striking off is not an Alternative to Liquidation
If the company simply can’t afford to pay its tax bill due to insolvency, liquidation rather than a striking-off is the appropriate route to closure. If the company is insolvent, directors should withdraw the application and seek professional advice from an insolvency practitioner.
A striking-off application is never an alternative to a formal insolvency procedure as the company can be restored to the Register by angry creditors after it has been struck off.