Members Voluntary Liquidations – HMRC Safety Net is Taken Away
Cessation of HMRC Tax Clearance Confirmation
HMRC published a bulletin on 6 December 2023 advising that it will no longer provide tax clearances to Liquidators in solvent liquidations. This decision applied to all existing and new cases and came into effect immediately. Liquidators are being told to “close cases without tax clearance, subject to their professional judgement”.
For many years it has been the practice that a Liquidator will seek the comfort and assurance of a clearance confirmation from HMRC before closing a case, although there was no statutory framework for the clearance requests. After all, no one wants a nasty tax surprise and all the complications it brings after all of the assets have been distributed and the case has been closed!
What does this mean for the Accountants and Tax Advisors?
For solvent liquidations, the lead advisor is usually the accountant or tax advisor to a client and has recommended a solvent liquidation, often for tax planning purposes, as the means to conclude the affairs of a company and distribute its net reserves to its shareholders.
The accountant is usually engaged to complete and return all corporation tax returns to the target date of the liquidation and confirm to the client the final pre-liquidation tax liabilities that needs to be settled.
However, the policy change by HMRC covers all taxation matters including PAYE/NIC and VAT. Sometimes the accountant completes these for the client but often the client completes these themselves.
The spotlight will be focused even more than before on the accountant and the client to ensure all returns are accurate and complete as the Liquidator will rely on these calculations. The client is responsible for ensuring the accountant has complete and accurate information to complete the calculations and returns. Whilst this has always been the case, the “safety net” of the tax clearance confirmation will no longer be provided by HMRC.
Accountants may therefore wish to ensure their engagement instructions and responsibilities to the client are clear and well documented.
What does this mean for the Shareholders?
Liquidators have traditionally relied on indemnities from Shareholders before making distributions. These indemnities usually cover a scenario where a liability comes to light after assets have been distributed and the Liquidator no longer has the funds to pay the claim. With HMRC no longer providing clearance confirmation there is scope, in theory, for unpaid tax liabilities to arise for several years and the reliance on indemnities becomes even greater.
Liquidators will no doubt be reviewing their indemnities and ensuring they are fit for purpose. Specific attention is likely to be drawn to taxation matters and the fact we can no longer obtain the tax clearances which previously would give comfort to Shareholders who had given indemnities.
This may also impact on the timing and quantum of distributions in the liquidation. However, engaging with the accountants and proposed Liquidator as early as possible will mean there is a clear plan for the liquidation and the distributions to be made and be agreed before the formal process starts.
It is important to note that the only change here is that HMRC have taken away the “safety net”. We will still work closely with the accountants and the clients to the same high standard, to ensure all potential liabilities are identified and clarified before commencing the liquidation process and there is a pre-agreed plan for dealing with the net assets in the liquidation.
If you have any questions or would like to discuss the change of policy by HMRC, please contact either Matt Hardy or Andy Turpin on 0121 200 2962 or using the contact details below:
matth@poppletonandappleby.co.uk andyt@poppletonandappleby.co.uk
07767 237619 07771 955241
