21 Nov 2019

Tax Implications of DLAs and Distributions in Specie in solvent MVLs

20191121 Insolvency tax implications blog 32324630

It feels good to occasionally confirm what we always thought was right, and HMRC has very recently updated its manual with useful guidance on the tax implications of directors’ loan accounts and distributions in MVLs - https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61559

The key message to take away:

-> Distributions in specie do constitute repayment (and cash does not need to be circulated around!)

That is consistent with our experience of seeking to recover S455 tax where the DLA is cleared by distribution in specie. HMRC are happy to take the date of distribution as the repayment date, and grant relief 9 months and 1 day from the submission of the liquidation Corporation Tax return, which we naturally get in as quickly as practicable; certainly better for the client than potentially waiting 21 months from the date of liquidation for the S455 tax to come back!

Our strategy for reclaiming early repayment discount on Corporation Tax is also working well. In our latest case, we have agreement from HMRC to recover over £14,000 for the client, at no additional cost to them, by simply getting the timing right.

Nice to have some positive news to share as an (in)solvency practitioner!