HMRC to Stop Providing Tax Clearance for Members Voluntary Liquidations
This makes the decision of who to appoint as Liquidator for Members Voluntary Liquidations much more important than before
Announced on 6th December 2023 and with immediate effect, HMRC have stated in an Insolvency Guidance note that it will no longer provide pre- and post-tax clearances for Members Voluntary Liquidations (MVLs). This change moves the responsibility for determining tax compliance away from HMRC to directors/ shareholders to ensure all taxable events have been dealt with. This in turn makes the decision of who to appoint as Liquidator much more important than before as they will be relying on Insolvency Practitioners (IPs), to show their professional expertise and judgment in order to conclude MVLs without official tax clearance from HMRC.
In this article we look at why HMRC has made this decision and what the implications are.
Why did HMRC make the decision? How does the new system work?
The decision to discontinue tax clearance for MVLs stems from the absence of a statutory or best practice framework governing HMRC’s issuance of such clearances. To compensate for this lack of formal guidance, IPs have developed alternative methods for assessing the accuracy of a company’s tax liabilities. This is important for directors and shareholders to understand. The methods used include:
- Declaration of Solvency: This is a statement of assets and liabilities provided by the company’s directors (supported by their accounting records and professional advisors) and declared by all or a majority of the directors. This has always been an important document but becomes doubly so now as the potential consequences of getting it wrong are more damaging.
- Compliance checks. Ensuring all HMRC compliance checks and reviews into the company’s affairs have been dealt with pre-appointment.
- Notifications. Ensuring all notifications from HMRC regarding any potential pre-liquidation liabilities are finalised.
HMRC now anticipate that directors have already established the tax position of the company during the preparation of the Declaration of Solvency, and their ongoing involvement in the MVL process will inform an IP’s understanding of post-appointment tax matters.
Comment by our Insolvency Practitioners
Overall, our view is that whilst this change aims to streamline the MVL process and promote efficiency, while also placing greater reliance on the expertise of professionals including IPs in assessing tax compliance, in practice it will change very little. There had been, for some time, concern within the profession that the heavily caveated nature of tax clearance letters sent to HMRC often raised questions about their true value in the first place. For that reason, the IPs here at Antony Batty and Company have been following this best practice for some years now.
While some in the insolvency industry may express a degree of dissatisfaction with this development, it is expected to speed up the completion of MVLs that have been hindered due to HMRC’s current capacity constraints in processing clearance requests, and will enable directors and shareholders to make more informed decisions when approaching an IP to deal with a Liquidation.
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