The recent case of Farnborough Airport Properties Company and another v HMRC is noteworthy for the light it shines on the dimly lit and often difficult interaction between tax law and insolvency.

The issues

Remuneration schemes involving Employee Benefit Trusts (EBTs) have become more prevalent over the last 20 years, often as a way of seeking to remunerate key employees without making pay as you earn or national insurance contributions. Given the developments highlighted below, insolvency practitioners are advised to investigate such schemes in matters coming across their desks to see whether funds can be clawed back for the benefit of creditors.

HM Revenue and Customs’ opinion on EBT schemes

An estate is deemed to be bankrupt when the total value of its debts and liabilities (including conditional and future liabilities) is greater than the total value of its assets. A bankrupt estate is often a very daunting prospect for the executors or administrators (the PRs). The task of administering such an estate is challenging and often fraught with pitfalls. What should the PRs look out for?

If I was to provide some top tips for those potentially faced with insolvent estates, I would say the following are my top 3:

HMRC has published guidance on its views on the recent changes to the tax rules in relation to company windings up.

The Finance Act 2016 introduced a new Targeted Anti-Avoidance Rule (TAAR) to prevent “phoenixism” – broadly where solvent companies are liquidated so that shareholders dispose of their shares to realise a Capital Gains Tax charge rather than paying income tax on the profits that would otherwise be distributed.

The new rules will broadly apply where:

This month we consider the court's view on the extent to which firms' activities in handling complaints are themselves subject to adjudication by the Financial Ombudsman Service; the exercise of the court's discretion in refusing an unopposed application to annul a bankruptcy order; and more cases and issues affecting the industry:

The High Court considers the remit of the FOS's jurisdiction

The Court of Appeal, in the case of Grant & Another v Baker & Another [2016] EWCH 1782 (Ch), has held that a judge had been wrong to postpone an order for possession and sale of a matrimonial home indefinitely due to the postponement being incompatible with the underlying purpose of bankruptcy legislation.

Background

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:

This case raised the issue of when a company in financial distress (or the directors of that company) should issue a Notice of Intention to Appoint an Administrator (“NOITA”) which affords a moratorium under Schedule B1 of the Insolvency Act 1986 (“IA86”).

Facts

This case concerned the rejection by the liquidators of Saff One LLP (‘LLP’) of a proof of debt lodged by ESS. The issue was whether a tax mitigation structure involving a loan to LLP for purported investment in the Ultra Green Scheme gave rise to a provable debt if the monies ‘loaned’ passed in a circle and no such investment was made.

Original news

Mikki v Duncan [2016] EWCA Civ 1312, [2017] All ER (D) 157 (Feb)