6 Dec 2017
8% interest on Solvent Members' Voluntary Liquidations
It’s not often that I am left totally flabbergasted (away from the golf course!), but a recent change of policy from HMRC has done the trick - for the first time in 25 years and several hundred solvent liquidations, I have been asked to pay statutory interest on Corporation Tax in a Members’ Voluntary Liquidation (MVL)!
I might understand the logic if the Corporation Tax was overdue, but what HMRC are asking for, is interest at 8% from the date of liquidation to the date of payment, even where that has been made before the normal due date. They are relying on a very narrow section of a judgement in Lehman Brothers International (Europe): Lomas v Burlington Loan Management Ltd, but that is an administration case and not a precedent that should transcend to solvent winding-ups in my view.
Time will tell if the policy change extends to other Crown debts such as PAYE/NIC and VAT. Again, that would be wholly inequitable, not least because on a practical level, it takes HMRC three weeks or more to issue paper VAT returns for the final period up to liquidation (having turned off the option to e-file). How could an 8% interest charge be justified due to a delay on HMRC’s part!
The industry body R3 is making strong representations on behalf of the profession, but the likelihood is that it will take one of the big players to mount a challenge where the sums involved justify legal action. Meanwhile, we are left trying to explain the policy change to existing clients, whilst seeking to mitigate the damage by applying a discount set out under the Insolvency Rules for debts paid early. In one case, that has potentially created a refund over and above the statutory interest claimed, but HMRC are yet to respond to agree or even acknowledge that!
The key message to take away is that this should not impact upon the decision to enter into an MVL, which will still have significant tax benefits for shareholders. It is simply a case of additional planning, to ensure that, wherever possible, all Crown liabilities are paid prior to liquidation, if necessary on account based on informed estimates.
Finally, with apologies for more potentially bad news, and in no way trying to create an avalanche of new cases, rumours suggest that distributions in specie of overdrawn loans accounts could be the next thing on HMRC’s radar. I am yet to see any relevant authority on that, and hope it is nothing more than idle speculation. Rest assured that I will post again if I hear anything more on the topic.