Can a CVL Write Off HMRC Debt? Yes, But Not Immediately

A CVL does write off HMRC debt, but not on the day the liquidator is appointed and not in the way most directors expect. The unpaid balance disappears when the company is dissolved, and only after HMRC has claimed in the liquidation like any other creditor.

This is not unusual and it is not small. HMRC wrote off £5,049m of tax in 2023-24 and remitted a further £567m, giving total losses of £5,616m for the year. Those are the government’s own figures, given to the House of Lords in April 2025.

What catches directors out is where HMRC sits in the queue. Since December 2020, part of your tax arrears outranks your bank. If you have signed a personal guarantee, that single change can quietly increase what you owe once the company has gone.

This guide covers how a CVL will write off HMRC debt once liquidation is under way, which liabilities rank where, and what survives it. If you are still deciding whether to close at all, start with our guide to closing a limited company with debts to HMRC.

The short version

A CVL will write off HMRC debt the company cannot pay, but only once the company is dissolved.
VAT, PAYE and employee NIC rank as secondary preferential debts, paid ahead of the bank’s floating charge.
Corporation tax, employer’s NIC, penalties and interest rank as ordinary unsecured.
Interest stops accruing on the date the company enters liquidation.
Larger VAT and PAYE arrears increase what a lender can claim under a director’s personal guarantee.

Does a CVL write off HMRC debt?

A CVL does write off HMRC debt, though only the portion the company cannot pay once its assets have been sold. That balance clears when the company is dissolved at the end of the liquidation. The company stops existing, and the liability goes with it.

Two things survive:

A personal guarantee you have signed.
Any personal liability HMRC or the liquidator establishes against you as an individual.

Neither happens automatically, and neither is a consequence of the liquidation itself.

Is HMRC debt written off, or just left unpaid?

You will find advisers who say HMRC debt is “never written off in a liquidation, only left unpaid”. That is technically correct, and it stays right up until the moment of dissolution.

While the company is still on the register, the debt exists and belongs to the company. Nothing has been cancelled. What dissolution does is remove the thing that owed the money.

HMRC’s own accounting works on the same logic. It treats a debt as a write-off when there is no practical means of pursuing the liability, and as a remission when the debt could in theory be recovered but is not worth chasing. Dissolution creates the first of those two.

When is HMRC debt actually written off?

A CVL will write off HMRC debt at dissolution rather than at appointment, and in a straightforward case those two points sit six to twelve months apart. The company stays on the register throughout, so the tax authority remains a creditor of a live company for the whole of that period.

Nothing is cancelled on day one. The liquidator gathers in the assets, HMRC files a claim, funds are distributed in the statutory order, and only then does whatever is left unpaid fall away with the company.

The liquidation has to be paid for too, and those costs rank ahead of every creditor including HMRC. What a CVL costs and how it is funded is covered separately.

What happens to tax debt when a company is liquidated?

Tax on liquidation of a company is not a separate charge. It is the arrears already owed at the point of appointment, dealt with in the same statutory order as every other creditor claim.

The difference is that HMRC occupies two places in that order rather than one. Since December 2020, under the Finance Act 2020, taxes the company collected on somebody else’s behalf rank as secondary preferential debts. Everything else HMRC is owed ranks as ordinary unsecured.

The order of distribution in a liquidation is:

Fixed charge holders, paid from the assets under that charge
The costs and expenses of the liquidation
Employees, for arrears of wages up to £800 each and holiday pay
HMRC as secondary preferential creditor for VAT, PAYE income tax, employee National Insurance, CIS deductions and student loan deductions
The prescribed part, ring-fenced for unsecured creditors out of floating charge realisations
Floating charge holders
Unsecured creditors, including HMRC for corporation tax, employer’s National Insurance, penalties and interest

In most tax insolvency cases the preferential slice is what decides the outcome, because it is paid before the bank and before every trade supplier in the book.

What happens to corporation tax in a CVL?

Corporation tax in liquidation ranks as an ordinary unsecured debt. It is paid after the floating charge holder, not before, and it falls outside HMRC’s preferential status because the company owes it on its own profits rather than holding it on somebody else’s behalf.

Employer’s National Insurance sits in the same place. So do penalties and interest on any tax, including on VAT and PAYE.

This matters more than it might sound. A company owing £30,000 of VAT and £20,000 of corporation tax does not have a £50,000 claim against the estate. It has a £30,000 preferential claim and a £20,000 unsecured one, and in most liquidations only the first of those actually sees any money.

💡 Expert Insight

Steven Wiseglass

Director | Licensed Insolvency Practitioner | Founder, Inquesta | Fellow of R3

Directors arrive with a single figure in their head for what they owe HMRC. The first thing we do is break it apart, because the split between VAT and PAYE on one side and corporation tax on the other changes who gets paid and, in guarantee cases, changes what the director is left carrying.

Why does HMRC’s ranking matter if you have signed a personal guarantee?

Because the preferential claim is paid out of floating charge realisations before your lender sees a penny of it. Less money reaches the lender, the shortfall grows, and the shortfall is what they come to you for.

If your bank or invoice finance provider holds a floating charge over the company’s assets, the liquidator works through the queue before they see anything. Employees come first, followed by HMRC’s VAT and PAYE claim, then the prescribed part set aside for unsecured creditors under section 176A of the Insolvency Act 1986. That prescribed part is 50% of the first £10,000 of net floating charge realisations plus 20% of anything above, capped at £800,000. Whatever is left goes to your lender.

So the bigger the VAT and PAYE arrears, the bigger the claim against you personally. The liquidation will write off HMRC debt owed by the company in full, while quietly increasing what you owe your bank.

The two move in opposite directions, and almost nobody tells directors this before they sign.

Does HMRC debt keep growing once the company is in liquidation?

No. HMRC debt stops growing on the date the company enters liquidation, known as the relevant date. Under rule 14.23 of the Insolvency (England and Wales) Rules 2016, interest is only provable for periods up to that date.

Post-liquidation interest is payable only where there is a surplus after every proved debt has been paid in full, which is rare in an insolvent liquidation.

Put simply, entering a CVL freezes the figure. Carrying on while insolvent does not.

Can HMRC still pursue you personally?

HMRC can pursue you personally after a CVL in six defined circumstances, none of which arise from the liquidation itself:

Personal guarantees
An overdrawn director’s loan account
Joint and several liability notices
PAYE personal liability notices
Wrongful trading
Attempted dissolution instead of formal closure

A CVL will write off HMRC debt owed by the company. It cannot write off a liability that has already become yours.

Each route, and the test HMRC has to meet before it can use it, is set out in our guide to whether HMRC can take your house for company debt.

What if the HMRC debt is yours personally?

Company routes do not help with a personal tax debt. If you are a sole trader, or the arrears are on your self assessment rather than the company’s account, your options can be found on the personal side of insolvency.

HMRC can petition to make an individual bankrupt for debts of £5,000 or more, though in practice it treats that as a last resort. An individual voluntary arrangement is the more common route, with any qualifying debt remaining at the end of the term written off. Where debts are modest and there are few assets, a debt relief order may fit instead.

Directors sometimes find they are dealing with both a company tax debt and a personal one simultaneously, although the two should be kept apart. Our guides to how an IVA works and personal bankruptcy cover the individual position.

Does HMRC investigate you after a CVL?

Your liquidator does, and HMRC sees the outcome. Under section 7A of the Company Directors Disqualification Act 1986, the liquidator has to send a report on the conduct of every director to the Secretary of State within three months of the insolvency date. That happens in every liquidation, whatever the size of the debt.

It is not an accusation. It is a record of what happened and whether anything about your conduct warrants a closer look.

Directors who took advice early, kept their records, and stopped trading at the right point tend to have a very short report.

The conduct report is the reason I would rather see a director six weeks before a winding up petition than six weeks after one. Everything I can say in your favour comes from decisions you made before I was appointed.

Steven Wiseglass, Director | Licensed Insolvency Practitioner

Frequently asked questions

Does HMRC get paid before the bank in liquidation? For VAT, PAYE and employee National Insurance, yes. Those rank as secondary preferential and sit ahead of a floating charge holder. Corporation tax and employer’s NIC are a different matter, and the bank is paid first on those.

Can HMRC object to a CVL? No. The decision to liquidate belongs to the shareholders and the appointment is made by the company. HMRC’s own guidance is clear that in an insolvency it stands in the same position as any other creditor and does not direct the insolvency practitioner’s actions. What it can do is vote on the choice of liquidator and ask that liquidator to investigate further.

Does dissolving a company write off HMRC debt? It does not, and striking off a company that owes tax is not a shortcut around liquidation. HMRC can object to the application, and it can apply to restore a company that has already been struck off so the arrears can still be pursued.

Is a CVL the only way to write off HMRC debt? A company voluntary arrangement can write off part of what is owed while the business keeps trading, and administration sometimes produces a partial recovery. Outside a formal insolvency procedure, though, HMRC does not negotiate reductions.

Speak to a licensed insolvency practitioner about your HMRC position

If your company owes VAT, PAYE or corporation tax it cannot pay, what a CVL actually costs you comes down to the split between those liabilities and the security your lenders hold. Worth knowing before you commit to anything.

Steven Wiseglass is a licensed insolvency practitioner and can talk you through your company’s position, your guarantee exposure, and whether a CVL is the right procedure.

If negotiation is still realistic, our tax debt solutions team can approach HMRC on your behalf instead. Contact Inquesta today. Fill in our contact form to request a callback. Alternatively, call Inquesta on 0800 093 4604 or email [email protected].