The time it takes to conclude the members voluntary liquidation (MVL) process is set to reduce, following new guidance issued with immediate effect by HMRC. HMRC will “no longer provide pre and/or post tax clearances in MVL cases”, with Insolvency Practitioners instead required to exercise their own professional judgement as to whether a company’s tax affairs are fully complete.
This guidance comes as welcome news to both Insolvency Practitioners as well as business directors looking to close their insolvent business in a tax-efficient manner. The new rules, which came into effect on Wednesday 6th December 2023, should speed up the process and ensure funds can be distributed to shareholders quickly. Here is everything you need to know about the changes:
Why Has HMRC Issued New Insolvency Guidance?
The change to HMRC’s involvement in the members voluntary liquidation process comes after lengthy efforts from both the insolvency profession and HMRC to streamline the process.
Historically, a liquidator involved in an MVL required a tax clearance letter from HMRC before being able to conclude the process. This letter confirmed that the liquidating company’s tax affairs were fully complete and therefore that an MVL was a suitable means of business closure.
However, HMRC delays meant that this process became increasingly ineffective with some MVL processes taking as long as 18 months to complete. This resulted in additional costs being incurred to maintain the liquidation for longer and, in certain circumstances, payments to shareholders being delayed. A change was required to ensure that the backlog of MVL cases could be cleared and that further delays could be prevented moving forward.
How Does The New Guidance Apply To Existing Requests?
HMRC has confirmed that the new guidance applies to both existing and future tax clearance requests. They state “any requests from insolvency practitioners for clearance already received will not be responded to, and any future requests will not be actioned. This will include requests covering all heads of duty and will also cover all insolvency types.” Any IP that is currently awaiting the outcome of a tax clearance letter from HMRC can therefore proceed on the basis of their own professional judgement and therefore business directors can expect their delayed case to move forward again in the near future.
Key Takeaways For Business Directors
Any business director who is either considering or currently involved in the members voluntary liquidation should be aware of how these changes might directly affect them. The key thing to note is that you can now expect the process to conclude much sooner than may previously have been the case. Ballard Business Recovery now estimates that the majority of its MVLs will now be capable of concluding within 3-6 months of appointment, as opposed to the 12-18 months that had become the norm due to delays waiting for tax clearance from HMRC.
As Insolvency Practitioners begin to exercise their own judgement as to whether company tax affairs are fully complete, business directors should also be aware that cooperation between all involved parties will be key. The Insolvency Practitioner, accountant and directors will be required to work together to bring the matter to a timely conclusion. You can expect that the IP will look to obtain copies of the last tax returns from your accountant to ensure that there are no missing returns required to the period where your company ceased to trade. Once the Insolvency Practioner has verified that all tax liabilities have been paid, payments to shareholders can be processed.
Whether you are currently going through the MVL process or are considering it as a means of closing your business, we appreciate that you may have questions about how this new HMRC guidance may affect you. Don’t hesitate to take advantage of the shortened MVL process and get in touch with the experts here at Ballard Business Recovery for more information and clear guidance about your options and obligations.
