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COVID-19 (UK): Small mercies – HMRC clarify position on insolvency proceedings

In a move that will be greeted with a small sigh of relief by individuals, businesses and insolvency practitioners affected by the coronavirus pandemic (COVID-19), HM Revenue and Customs (HMRC) has published new guidance on its approach to insolvency procedures.

The guidance covers:

  • Ongoing voluntary arrangements (VA), and

  • HMRC’s enforcement activity

Ongoing VAs

Many businesses will already have been in a formal VA when the COVID-19 crisis hit. The impact of the pandemic on such business has the potential to be especially severe, impacting not only their ability to continue trading but also straining their ability to meet VA obligations.

Where individuals, companies and partnerships are, “as a result of the impact of coronavirus”, facing difficulties meeting VA contributions, HMRC is encouraging supervising insolvency practitioners (IP) to exercise maximum discretion, and only to consult with creditors where it is essential to do so.

To support IPs in these circumstances, HMRC has confirmed that:

  • It will support a minimum three month deferral of VA contributions; and

  • IPs do not need to contact HMRC to seek approval for the deferral.

In addition, HMRC has confirmed that any deferral of tax that the business is entitled to under the government’s COVID-19 financial support package (i.e. for VAT, or self-assessment payments of income tax on account, as explained in more detail in our alert: COVID-19: UK Tax – Measures and Waits) will not be considered to be a breach of a VA.

HMRC’s enforcement activity

HMRC has relaxed its position in relation to its powers to enforce the collection of outstanding tax liabilities as a petitioning creditor and confirmed:

  • All insolvency activity (i.e. whether arising as a result of COVID-19 or not) has been paused – HMRC will not petition for bankruptcy or winding up orders (other than essential circumstances such as those involving fraud or other criminal activity).

  • HMRC will continue to consider new proposals for Company Voluntary Arrangements (CVA), Administrations, Individual Voluntary Arrangements (IVA) and Trust Deeds – the normal HMRC contacts should be used.

  • As outlined above, HMRC will support a three month deferral of VA contributions where the supervising IPs considers the business is unable to maintain payments – to apply, IPs should contact the HMRC Coronavirus Helpline (via webchat or on 0800 024 1222)

  • Subject to review and extension, at the end of the three month period (i.e. from 1 July 2020), the supervising IP should either:

    • Resume payments; or

    •  Contact the relevant HMRC Enforcement and Insolvency Service (EIS) to discuss a ‘Time-to-Pay’ arrangement

Any IPs with general insolvency questions should, in the first instance, route any through their RPB.

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About this Author

Robert O'Hare, Squire Patton Boggs Law Firm, Professional Support Lawyer
Professional Support Lawyer

Robert O’Hare is a professional support lawyer in the firm’s Tax Strategy & Benefits Practice Group. He is predominantly based in the London office.

Primarily a corporate tax specialist, Robert has wide-ranging experience of advising clients on the full range of corporate tax issues and has specialist knowledge of UK and cross-border corporate acquisitions, public market and financing transactions alongside both private equity and retail investment fund structuring. 

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