Following years of frustration with their response times, HMRC has taken sudden and decisive action. Helpful action? No, not that.

Insolvency practitioners (“IPs”) often have to contact HMRC.  For the smaller size of cases we deal with at CS Corporate Solutions, there are simply no alternatives.  In solvent liquidations, interest calculations have to be agreed and until HMRC’s unprovoked announcement in December, tax clearance had to be obtained.  And in insolvent liquidations, claims have to be agreed and pre-insolvency corrections (including the treatment of deliberate ‘errors’) often need HMRC input.

Input can be had to obtain.  For example, I wrote to HMRC about a VAT issue in March 2023.  When I phoned to check on progress (and it is an ordeal to hold on for an answer) I was told the letter had been received but had not yet been ‘worked on’.  In January 2024 the officer I spoke to even looked at the file and said he thought that the information I had provided was possibly not in an acceptable format.  “Possibly.”  He would check, he said, and write to me.  And another month has passed waiting for the letter, which may eventually arrive.  Or may not.

So what was the change that HMRC announced on 8 December 2023?

HMRC has announced that, with immediate effect, it will no longer provide pre and/or post-insolvency tax clearance in MVL cases.

IPs should close cases without tax clearance subject to their own professional judgement. This means any requests for clearance already received by HMRC will not be responded to, and any future requests will not be actioned.

“Subject to their own professional judgement.”  Great.  But judgement has to be based on information, and that information is going to come from directors and their advisors.  And what exactly are they likely to ‘fess up’?

So faced with an MVL where, according to those previously involved, everything in the tax garden is rosy, what does the IP now have to do?  ICAS suggests this:

The pre-appointment tax position provides a less certain environment for the IP as they have no direct knowledge or control over the company and its affairs during that period. As a result, the possibility of unknown liabilities existing is higher and the risks of making payments to shareholders beyond that to which they are entitled to is higher.

However, if appropriate enquiries have been made with the company and HMRC has been given an opportunity to submit a claim following the procedures set out within insolvency legislation, then it is open to an IP to close the MVL without tax clearance, subject to their (and their firm’s) professional judgement of the risk.

Those enquiries may include:

• Suitable enquiries of the company’s directors and its previous accountant.
• The IP evidencing that all tax returns have been submitted and payment made of any tax due
• Ensuring that any claims received/liabilities due to HMRC based on assessments have not been or will not be appealed and are legally due.