On 29 November 2016, the First-tier Tribunal9 held that the issue of growth shares to certain key employees had inadvertently caused an existing class of ordinary shares to carry a preferential right to assets on a winding up. The effect of this was that both prior ordinary share issues, and future share issues, failed to meet the requirement of the Enterprise Investment Scheme (EIS) rules.

On 11 October 2016, the High Court10 held that statutory interest payable on an insolvency (under rule 2.88(7) IR 1986) is not “yearly interest” for UK tax purposes. Such statutory interest is therefore not subject to UK withholding tax (20%).

The facts of the case are somewhat unusual in that there was a substantial surplus in the administration and the statutory interest was estimated at £5bn. However the decision is a welcome clarification of the position. It also confirms HMRC’s previous guidance on the taxation of statutory interest (subsequently withdrawn).

In Lomas and others v HMRC [2016] EWHC 2492 (Ch), the High Court has confirmed that statutory interest payable on insolvency is not 'yearly interest' for UK tax purposes. The administrators therefore had no obligation to account for income tax on the interest payments made. The Court was also critical of HMRC's contradictory guidance on this issue.

Background

In Winnington Networks Communications Ltd v HMRC^[1], the Chancery Division Companies Court (Nicholas Le Poidevin QC) refused the taxpayer company's application to have HMRC's winding-up petitions dismissed, as it had failed to provide evidence that it had a real prospect of successfully disputing the debt claimed by HMRC.

Background

On 22 April 2015 the Supreme Court handed down its judgment in the case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23, which was heard in October last year.  In short it decided that: 1) defendant directors cannot raise illegality as a defence to a claim by a company where the directors themselves acted wrongfully; and 2) a claim in fraudulent trading under Section 213 of the Insolvency Act 1986 (Section 213)has extra-territorial effect.

Background

In Stephen John Hunt (Liquidator of Marylebone Warwick Balfour Management Ltd) v Richard Balfour-Lynn and others [2022] EWHC 784 (Ch), the High Court decided that the directors of a company which went into liquidation after participating in an ineffective tax avoidance scheme did not breach their fiduciary duties and payments made pursuant to the scheme were not transactions defrauding creditors.

Background

In the recent case of HMRC v Munir & Others[1], HMRC successfully applied to the Court for committal of three company officers for contempt of court where an order appointing a provisional liquidator was knowingly breached.

 Background

HMRC clamping down on furlough fraud by companies in Danger Zone

The latest statistics show that over 11 million workers have been furloughed in the UK as part of the government's job retention scheme (that equates to 16% of the population or one in six people) and 41% of employers had staff furloughed. The scheme has so far cost the government over £40 billion and this figure will continue to rise until the end of September this year when the scheme is set to wind down.

The published judgment in Abbey Forwarding[1] will not make for comfortable reading for HMRC. Having instigated the winding up of a profitable business, which led to the dismissal of 23 employees, and accused  innocent directors of fraud, HMRC then withdrew all assessments made against the company and attempted to avoid undertakings it had given to the court when seeking the original winding up order.

On 11 September 2020, the Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 were made. The Regulations will come into force on 1 December 2020.

The Regulations set out the debts due to HMRC that will have ‘secondary’ preferential status in insolvencies from 1 December 2020. They are debts in respect of PAYE income tax, employee NICs, construction industry scheme deductions and student loan repayments. VAT debts are to be treated in the same way, though are not covered by these Regulations.