Practical advice on HMRC’s interest rate change on liquidation tax payments
North London area society chair Paul Weber offers practical advice for insolvency practitioners faced with the new 8% interest charge on members’ voluntary liquidation (MVL) tax payments
This is a follow up to the Technical Alert issued on 21 December 2017, and R3’s guidance issued February 2018. It concerns HMRC’s clear change of approach in requesting the payment of 8% statutory interest (SI) on all claims for tax due from the date of the winding up. This includes the final corporation tax return falling due nine months and one day after the commencement of the winding up.
R3’s discussions with HMRC are on-going and it continues to put forward the issues members are facing as a consequence of this change of approach, to HMRC. It continues to seek written confirmation that HMRC will not seek to re-open closed MVL cases where statutory interest has not been paid on HMRC claims and they continue to request further guidance from HMRC in response to the concerns raised by R3 as to the application of the change in HMRC’s approach, raised initially in 2017.
R3 has been made aware by members that HMRC has recently commenced issuing letters to insolvency practitioners with open MVLs, pre-dating HMRC’s guidance issued in February 2018, requesting payment of outstanding statutory interest, or, if payment of the statutory interest is not possible, then an explanation about why the MVL has not been moved to a creditors’ voluntary liquidation (CVL) under s95 Insolvency Act 1986. Please note that until formal written guidance is issued by HMRC, while these practices are considered acceptable to mitigate any interest arising, members should remain cautious.
- It is clear from the Insolvency Rules that statutory interest is payable on an MVL on all debts outstanding at the commencement of the winding up, and this applied to debts due to HMRC. Members are encouraged to open a dialogue directly with HMRC to discuss issues arising from this change in approach and to share with R3 any guidance provided by HMRC directly on what further action should be taken.
- SI due to HMRC should be calculated in accordance with the legislation. However, there is a discount mechanism if it is paid before the due date.
- Where funds are available, the SI should be paid to HMRC.
- Where funds are not available to make payment of SI due to HMRC, the options available to the IP will depend on whether funds have been distributed to shareholders or not and whether such funds would have been sufficient to cover the SI due in full.
- Where funds would have been available to pay the SI due to HMRC, but such funds have been distributed to the shareholders instead, a move to CVL under s95 IA 1986 may not be considered appropriate if it is possible to recover the payments from shareholders and pay the SI to HMRC. In these cases IPs should take legal advice on the steps available to recover the relevant funds from shareholders to enable a payment to be made to HMRC instead.
- IPs are advised to open a dialogue with the relevant shareholders of the company to explain that a change in approach by HMRC has resulted in an overpayment being made to shareholders and therefore they will need to submit a formal request to shareholders for repayment of the amount payable to HMRC (in accordance with the shareholders’ rights on the shares).
- Members should keep contemporaneous notes of all decisions made and steps taken in this regard.
- Where shareholders do not understand the change of approach and do not repay an amount, members are encouraged to make contact with HMRC and R3, so they can compile information to demonstrate to HMRC the efforts members are going to following this change.
- Where funds have not been distributed to shareholders, or those funds distributed are insufficient to settle the SI due or cannot be recovered, then IPs should consider whether a conversation to CVL would be appropriate and, if necessary, take legal advice.
We are advising director(s) to pay any unpaid tax prior to the liquidation to prevent statutory interest being paid.
Paul Weber is chair of the North London area society of the LSCA
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