Historically, HMRC has allowed insolvency practitioners to, at an early stage following their
appointment, cancel the VAT registration of the insolvent business. Practitioners have then been 
entitled to account for VAT on any subsequent supplies using HMRC’s form VAT 833 (Statement of 
Value Added Tax on goods sold in satisfaction of a debt).

HM  Treasury  has  provided  the  Public  Bill  Committee  with  a  draft  copy  of  The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations  2020,  to  be  made  pursuant  to  the  current  clause  96  of  the  Finance  Bill  2020.  The  draft  regulations  have  not  yet  been  formally  laid  before  Parliament but are d

The High Court (David Donaldson QC) has held in Enta Technologies Limited v HMRC [2014] EWHC 548 (Ch), that where a winding-up petition was brought by HMRC based on the non-payment of tax raised in assessments and the taxpayer's appeal against those assessments was pending, the winding-up court should refuse to adjudicate on the merits of the appeal and should leave that question to be dealt with by the First-tier Tribunal (Tax Chamber) ('FTT').

Background

On 11 July 2019, HMRC published a policy paper discussing measures which are aimed at those  taxpayers who “unfairly seek to reduce their tax bill by misusing the insolvency of companies”.  This will be achieved by making directors and other persons connected to those companies jointly and severally liable for the avoidance, evasion or “phoenixism” debts of the corporate entity.

An explanatory note and draft legislation set out the conditions that must be satisfied in order to enable an authorised HMRC officer to issue a “joint liability notice” to an individual.

Company Insolvencies

One of the criticisms that is often made of the UK’s complex insolvency legislation is that it is too easy for the directors of a company to put it into liquidation or administration, ‘dump’ the company’s debts and then effectively start the same business again under the guise of a new company. Such phoenixism has often been of concern to HMRC both in the civil and criminal fields and prosecutions have been made against directors who have undertaken such activities on a repeated basis.

Personal Liability Notices (‘PLNs’)

On 11 July 2019, HMRC published its summary of responses to its “protecting your taxes in insolvency” consultation.

Following the consultation, the government will legislate in the Finance Bill 2019-20 to make HMRC a secondary preferential creditor for certain tax debts paid by employees and taxpayers. This change is intended to ensure that when a business enters insolvency, more of the taxes paid in good faith by employees and taxpayers go to the Exchequer, rather than being distributed to other creditors. Draft legislation and an explanatory note is also available.

On 26 February 2019, HMRC launched a consultation entitled “Protecting your tax in insolvency”, on the government’s proposal to make HMRC a secondary preferential creditor for taxes paid by employees and customers (the new powers are contained in the proposed Finance Bill 2019-20).

At the beginning of a new year it is customary to consider what the year ahead may bring. 2019 promises to be eventful not least with the UK's (planned) exit from the EU on 29 March 2019. Here's what to look out for in the next 12 months…

Brexit

On 28 March 2017, the Enactment of Extra-Statutory Concessions Order 2017[3] was made which, amongst other things, enacts ESC3.20. The Order came into force on 6 April 2017.

ESC3.20 disapplied the clawback of input tax credit for an insolvent business that has not paid (or not fully paid) the consideration for a supply. New section 26AA of the Value Added Tax Act 1994 gives broadly the same effect as ESC3.20 in that it “turns off” the disallowance of input tax in cases of non-payment of consideration if:

Welcome to the February 2017 edition of our wealth and trusts quarterly digest. The digest provides up to date commentary and analysis on key sector developments. Our tax, wealth and trusts teams are able to provide a wide ranging service to assist you and your clients in responding to market trends and legal developments. We would welcome the opportunity to discuss any concerns you may have and always welcome feedback on the content of our publications. Feature When can trustees exercise their right of retention?