A company’s tax liabilities may be discharged in several ways during liquidation. The most common is asset sales, where the proceeds from the sale are used to pay off outstanding tax debts. In some cases, the company’s shareholders may be liable for unpaid taxes.
It is important to consult with professionals (such as these insolvency experts for hire in London) to ensure that all tax liabilities are properly discharged during liquidation. Here’s a look at what you can expect in terms of your company’s taxes during the liquidation process.
What Is Liquidation?
Liquidation is selling a company’s assets to pay off its debts. Once all debts have been paid, including tax liabilities, the company is dissolved and no longer exists. There are various ways to liquidate a company, but the most common is through asset sales.
Types of Liquidation
There are three types of liquidation:
Members’ Voluntary Liquidation
This is when the company’s shareholders vote to dissolve the company. This is typically done when the company is insolvent (unable to pay its debts), and there is no hope of turning things around.
Under this type, the company’s assets are sold off, and the proceeds are used to pay creditors. Any leftover money is distributed to shareholders. MVL is usually the most common type of liquidation for small businesses, but it also comes with disadvantages. Ensure to seek MVL liquidation advice for UK citizens before you proceed.
Creditors’ Voluntary Liquidation
This is when the company’s creditors (those it owes money to) vote to liquidate the company. This typically happens when the company is insolvent and the shareholders cannot pay off the debts.
After the company’s assets are sold, the proceeds are used to pay creditors. Any leftover money is distributed to shareholders. CVL is less common than MVL, but it may be the best option for your company if it is insolvent.
Compulsory Liquidation
This is when a court orders the liquidation of the company. This usually happens when the company has failed to pay its debts or comply with court orders.
After the company’s assets are sold off, and the proceeds are used to pay creditors. Any leftover money is distributed to shareholders. Compulsory liquidation is the least common type of liquidation, but it may be the only option if your company is insolvent and the shareholders are unable or unwilling to pay off the debts. Get help for company insolvency if you’re unsure about which type of liquidation to proceed with.
What Happens to Tax Liabilities When a Company Is Liquidated?
In the UK, a company may be liable for taxes, including corporation tax, value added tax (VAT), and payroll taxes. When a company is liquidated, its tax liabilities will be discharged in one of two ways: through asset sales or the shareholders’ liability.
Asset Sales
When a company is liquidated through asset sales, the proceeds from the sale of the assets are used to pay off the outstanding tax debts. Any remaining assets are then distributed to the shareholders. In some cases, the sale of assets may not cover the full amount of the tax liabilities, in which case the shareholders may be responsible for paying any remaining balance.
Shareholders’ Liability
In some cases, the shareholders may be held liable for the company’s unpaid taxes. This is most likely to occur if the company is unable to pay its debts, including its tax liabilities, through asset sales. In this case, the shareholders may be required to pay any outstanding balance.
It is important to consult with a professional before deciding to liquidate your company. They can help you understand your tax liabilities and how they will be discharged during the liquidation process.
The Bottom Line
Your company should still pay its tax liabilities, even if it is being liquidated. You can do this through asset sales, but the shareholders may also be held liable if the company cannot cover its debts through asset sales. Ensure to seek professional advice before proceeding with any liquidation.
Liquidation can be a complicated and time-consuming process so if you’re considering liquidating your company, seek professional advice to ensure that you understand your tax liabilities and how they will be discharged during the liquidation process.
