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Essentially the change is about the liquidator receiving a clearance letter for all tax liabilities prior to the Company being placed into an MVL.
Historically, HMRC provided a tax clearance service. That clearance meant Insolvency Practitioners and Company Directors knew that the tax affairs of the business to be liquidated were all agreed as being in order before the liquidation concluded. This service offered peace of mind by ensuring there were no lingering tax liabilities to be dealt with.
This option has now been removed and HMRC will no longer provide these clearances in either existing or new cases. While this may not seem to be much of a change, it has a significant impact on anyone currently considering a Members Voluntary Liquidation.
This change is a welcome one in many ways. While the clearance is a rather nice thing to have, it did tend to slow down the MVL process quite considerably. The MVL involving the clearance meant you relied on obtaining a letter from HMRC to confirm that the tax affairs were completed and in order. Once this was received, the liquidator could proceed with the process of closing the liquidation and distributing the final assets. Unfortunately, HMRC wasn't always the fastest department when it came to checking and confirming the tax position, and then the pandemic made the situation worse. Under the new system, the Insolvency Practitioner (IP) will now need to be satisfied that the tax position is correct and that all requirements have been met.
Without the backlog or assessment delay at HMRC, the process for finalising a Members Voluntary Liquidation should be considerably faster. In fact, assuming everything goes right, it could mean a huge difference in time scales. The key to this improvement will be ensuring that the appointed Insolvency Practitioner has all the information about the financial position, assets, liabilities, and so forth, so they can complete with HMRC.
Assuming that there are no surprises from HMRC, such as delays caused by large caseloads or similar, I would say we could be looking at saving months on the completion of even a complex MVL. For a well prepared liquidation, the time scale could reduce by more than half. I am being a little careful not to put specific times on all this because things change and every case is different, but we will talk about likely time scales during our initial conversations.
The other effect of the change is that as the appointed Insolvency Practitioner we will no longer have the advantage of the HMRC clearance letter. That means the judgement of whether the tax situation is correct will fall to us. This is not a problem, making sure that things are all up to scratch is one of the things we do, but it does change our approach a little.
Where it will make a difference is in the importance of total accuracy from the Company and its directors. We will need to be certain that, amongst other important information, your tax returns are appropriate and accurate and that all the records for the assets are in order and up to date. If they aren’t or there are discrepancies, they will need to be resolved before we proceed or potentially the liquidation will take longer.
The new guidelines come in with immediate effect. If you are about to consider an MVL then you will be using the new system with no clearance by HMRC. If you are currently in the process of one then your IP should be in touch to explain what happens next.
If you are thinking about an MVL you really do need to start the discussion with us early. Without the clearance, it will be even more important that you are transparent about the position of the finances and that you start to work towards the MVL as soon as possible. As a rule of thumb, the better the relationship we have, the faster and easier your MVL will complete. With the right guidance early in the process, and no HMRC clearance to wait for, that ‘faster’ could actually mean a big difference.
Call us, let’s set up an initial meeting to get the ball rolling.
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