The way HMRC accounts for PAYE is a mystery to many, as random debits and credits seem to pop up with no obvious cause. It is thus important to check whether there is any credit on company’s PAYE account held within HMRC, before shutting down the company.
Tax and NIC should be deducted from the director’s pay according to their PAYE code, but when that PAYE code changes a tax repayment can be due to the director. However, instead of repaying the tax to the company (who would repay it to the director) HMRC will hold on to the money as a credit on the PAYE account until the company requests a refund.
When the company’s trade slows down the directors may cease to take a salary, and hence no PAYE will be due. If the company is struck-off the register at Companies House with a credit still on the PAYE account, HMRC will not be able to issue a refund, as the company will no longer exist. Any credit balance held be HMRC will then pass to the Crown.
Always write to HMRC to establish if there are any tax matters outstanding, including PAYE, before making an application to dissolve the company. A liquidator will normally do this as part of a formal liquidation, but this PAYE check can be overlooked when using the informal striking-off procedure.
Written by the Tax Advice Network