Skip to main content

HMRC Tax Clearance In A Members Voluntary Liquidation Overview

On 6 December 2023 cessation of tax clearance in a Members Voluntary Liquidation was set out in HMRC’s Insolvency Guidance paper curiously called Cessation of tax clearance in Members’ Voluntary Liquidations.

Obtaining HMRC tax clearance involved seeking confirmation from it that a company’s tax affairs were in order. It would typically have been obtained by a Liquidator before he or she would close a Members Voluntary Liquidation.

HMRC would respond to confirm that they did not intend to raise further matters concerning the company’s tax affairs. That would mean all tax returns required had been filed and payments of tax paid that were due. Alternatively, HMRC would notify the Liquidator of any outstanding matters to be cleared before the HMRC tax clearance letters would be issued.

Cessation of tax clearance in a Members Voluntary Liquidation

Why Has HMRC Tax Clearance Been Abolished For Members Voluntary Liquidations?

The process of a Liquidator obtaining HMRC tax clearance in a Members Voluntary Liquidation had no statutory recognition whatsoever. It was to provide comfort to a Liquidator as to the tax position of a company that had gone into Liquidation given he or she enters office as a stranger to the affairs of the company.

Obtaining HMRC tax clearance could often be a lengthy process waiting for HMRC to send out confirmation from both its Corporation Tax division as well as its MVL Unit, leading to some people asking the question Why Does A Members Voluntary Liquidation Take So Long?.

More recently HMRC streamlined the process so the Liquidator only required one letter from one section of HMRC not two but with effect from 6 December 2023, HMRC abolished the clearance provision entirely. It is now no longer possible for a Liquidator to obtain comfort from HMRC that a company’s tax affairs are in order.

The HMRC tax clearance provided in letters from HMRC was often so notably caveated that some may have questioned the comfort provided in the first place for the Insolvency Practitioner.

Effect Of HMRC Abolition of Tax Clearance In A Members Voluntary Liquidation

On the one hand, this might appear to be good news because it might mean a Members Voluntary Liquidations can be completed more quickly, without the need for such HMRC clearance.

On the other hand, before anyone however looks to crack open the champagne too quickly in anticipation of a future of super quick Members Voluntary Liquidations, it might now mean company Directors (and perhaps their accountants) could have more work to do to satisfy the Liquidator that the company’s affairs on the tax front are fully in order.

Previously the Liquidator could rely upon the Statutory Declaration of Solvency from the Director(s), obtain HMRC clearance and then close the Liquidation. Now potentially there could be more work to be done.

Whilst the Statutory Declaration of Solvency is capable of being relied upon given it is supported by that all important Statutory Declaration, the Liquidator may want to satisfy themselves more thoroughly a company’s tax affairs are in order by seeking some or all of the following information for example:

  • Last three sets of financial statements submitted to HMRC and Company Tax Returns.
  • Evidence of the taxes the company was registered for.
  • Evidence that VAT, PAYE and any other tax schemes have been closed.
  • Confirmation the company has not participated in any tax avoidance scheme.
  • Statements from HMRC showing the closing tax position.
  • Evidence of payment of the taxes due on the concluding tax returns.
  • Provision of cessation accounts.
  • Last 12 months bank statements.

Directors can perhaps however now anticipate greater speed with which they can hope to obtain their capital distribution and no longer be potentially stuck in a queue as the Liquidator awaits an HMRC clearance letter.

For HMRC the cessation of providing the clearance presumably releases resources it can now deploy elsewhere.

What Does HMRC Tax Clearance Guidance Say?

HMRC’s Members Voluntary Liquidation guidance says:

As part of a process change, and with immediate effect, HMRC will no longer provide pre and/or post tax clearances in Members’ Voluntary Liquidation (MVL) cases and IPs should now close cases without tax clearance subject to their professional judgement. This me ans any requests from insolvency practitioners for clearance already received will not be responded to, and any future requests will not be actioned. This will include requests covering all heads of duty and will also cover all insolvency types.

Insolvency legislation requires directors to make a sworn declaration of the company’s assets and liabilities, confirming liabilities plus costs and interest can be met in full in the next 12 months. Directors need to be satisfied that the company’s liabilities, including tax liabilities, are stated accurately in order to confidently make this sworn declaration.

Liquidators, company financial advisors, directors and shareholders customarily work closely together in MVL cases to ensure the company’s affairs are wound up as efficiently as possible. Therefore, although the IP may have had no direct knowledge or control over the company in the 06 December 2023 pre-liquidation period, HMRC would expect IPs should be in a position to establish an accurate tax position through working with the company’s officers and advisors. If any HMRC compliance checks are in progress at the time of the liquidator’s appointment, the liquidator will need to work with HMRC to conclude the compliance check before they can cease to act. Similarly, any outstanding pre-appointment returns will need to be filed.

HMRC will continue to submit claims for pre-insolvency debt in accordance with statutory requirements which will also be an additional source of information for liquidators to take into account.

In relation to tax liabilities arising post-liquidation, the liquidator is in control during this period. They will be able to ascertain with confidence that all post-appointment tax returns and information necessary have been submitted to HMRC, and that any liabilities due to HMRC have been paid.

Oliver Elliot Comment

Oliver Elliot Comment !

Going forward a shareholder of a company with its tax affairs properly and demonstrably in order could conceivably obtain a distribution of their capital in Members Voluntary Liquidation with greater speed than might historically have been the case if a Liquidator was awaiting HMRC clearance before making a distribution.

However, notwithstanding that position, the anticipation of super speedy Members Voluntary Liquidations might be overly optimistic, particularly if many Liquidators now choose to obtain a greater level of detail for their compliance file of the company’s HMRC tax affairs and a company’s records have not been kept as up to date to demonstrate its tax affairs as required.

GET IN TOUCH FOR HELP

For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: May 20, 2024

Please enable JavaScript in your browser to complete this form.

Name

100% Confidential Advice
We Know Insolvency Inside Out

Share This Page!

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to Cessation Of Tax Clearance In A Members Voluntary Liquidation then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

Please enable JavaScript in your browser to complete this form.
Name

By submitting this form you agree with the storage and handling of your data by Oliver Elliot. For more details, please read our Privacy Policy.

Opt in

Disclaimer: Cessation Of Tax Clearance In A Members Voluntary Liquidation

This page is not legal advice and is not to be relied upon as such. This article Cessation Of Tax Clearance In A Members Voluntary Liquidation is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

Recent Posts / View All Posts

Is Tax Avoidance Still Alive And Well?

Is Tax Avoidance Still Alive And Well? Liquidator Loses Transactions Defrauding Creditors Claim

| HMRC, Liquidation | No Comments
Is Tax Avoidance Still Alive And Well? Liquidator Loses Transactions Defrauding Creditors Claim Relax! You can still arrange your affairs to minimise tax. Can't you? In a long running matter…
Failure To Keep Company Records Does Not Shield A Director From The Liquidators’ Claims

Failure To Keep Company Records Does Not Shield A Director From The Liquidators’ Claims Or Keep Out ‘Prying Eyes’

| Company Records, Liquidation | No Comments
In the case of Thiel-Czerwinke & Anor v Crabb (Courtside Recycling Ltd, Re) EWHC 337 (Ch) the Liquidators showed that a failure to keep company records does not shield a…
Why Do We Liquidate Companies?

Why Do We Liquidate Companies?

| Liquidation | No Comments
Why do we liquidate companies? We liquidate companies so they can be closed down in a fair and organised way that minimises the risk of disputes arising. So long as…
Appointing An Insolvency Practitioner And The Perception Of Independence

Appointing An Insolvency Practitioner And The Perception Of Independence

| Liquidation | No Comments
Appointing an Insolvency Practitioner and the perception of independence cropped up as an issue last week when a creditor of a company that had gone into Administration asked if we…
Elliot Green

Licensed Insolvency Practitioner & Chartered Accountant. We Know Insolvency Inside Out.

Leave a Reply