Andrew Rosler, ICS Managing Director and licensed Insolvency Practitioner talks about Tax Avoidance Schemes and Accelerated Payments following new powers granted to HMRC, by which they estimate to recover £7billion in avoided tax payments.
HMRC will now start issuing follower notices and accelerated payment requests to individuals and companies they consider have participated in tax avoidance schemes. Generally avoidance schemes will be given a unique coding to insert on corporation tax return DOTAS.
Company Directors ought to get advice should the Company not be in a position to repay any Tax that should have been paid in the absence of the avoidance scheme.
Therefore a key question is whether the Director’s decision to enter into an avoidance scheme is a breach of their duty to creditors, if the Company subsequently went into an Insolvency process because it was unable to repay the tax it avoided? Will Directors be subject to tax on any benefit they received under the avoidance scheme?
The answer to these questions depends on a number of factors including the:
• type of scheme
• advice of the professionals the Directors relied upon
• level of insurance cover sold with the scheme
• general conduct of the Directors
• level of deficiency ultimately facing the Company.
If the Company has been dissolved it is most likely it would have come to the attention of HMRC who could have objected to the striking out process.
If the Company had already gone through an Insolvency process then the contingent claim from HMRC ought to be held as being part of the Insolvency and hence the debt would die with the Company (subject to various Insolvency offences mentioned below.
The first principle is that a Dissolved Company cannot be pursued for Tax due nor can it receive any repayments of Tax. The necessary action would be for the Company to be restored to the register and then formal recovery can begin.
A creditor has 6 years from the date of dissolution to apply to restore a Company through the Courts.
If the Company cannot repay the debt then the creditor might instigate winding up proceedings to recover the debt. Once/if the Company goes into Compulsory Liquidation a Liquidator can challenge certain transactions that the Company Directors caused the Company to enter into prior to its Dissolution. Such transactions include;
Transaction at an undervalue: Assets being transferred at less than market rate – this period can be 2 years from the date of the winding up petition if to a connected party –remedy may overturn the transaction.
Preference: The payment to a creditor to put such creditor in a better position that other creditors – 2 years period of claw back if a connected creditor.
Misfeasance: Action against a Director who has acted contrary to their fiduciary duties –no time limit.
Transaction to defraud creditors – A transaction at an undervalue with the intention of putting assets outside the reach of creditors.
It must be borne in mind that the Court will look at contingent creditors when determining whether the actions taken by Directors are valid or not. Both misfeasance and transactions to defraud creditors are likely to be claimed against the Directors personally. Should the Directors defence fail, then they might face Bankruptcy proceedings should they not be in a position to repay the claim.
This is a new area facing Directors, HMRC and Insolvency professionals so it is premature to determine how aggressive HMRC will be in taking retrospective action against dissolved companies. It is likely this will depend on the type of scheme and the size of the tax loss. The attitude of the Insolvency Practitioner might also dictate how aggressive the insolvency offences are litigated. These are both unknowns at this stage however, it is important that Directors take advice on either their current Company duties and also what remedies might be taken on previous Directorships or Dissolved companies.
I would recommend that the principle of tackling Directors retrospectively (including the restoration of companies) be looked at by instructing specialist Insolvency counsel. Alternatively or in addition to, an Insolvency Practitioner might advise on a case by case basis and provide a letter of advice to the Director on the potential issues that might arise together with suggestions of various options.