HMRC now charging interest on tax that is not even due
Statutory Interest at 8% on Corporation Tax in Solvent Liquidations
Unfortunately, we have to report that HMRC now require the payment of statutory interest at 8% per annum from the commencement of a solvent liquidation [Members’ Voluntary Liquidation aka MVL] on any Corporation Tax that falls due after commencement of the liquidation, even if the normal due date for payment is not due until after the commencement of the liquidation, and the payment is made before the due date.
For example, let us assume that the company’s year-end is on 30 April 2017. The Corporation Tax Return is not due for submission until 12 months after the company’s year-end i.e. not due until 29 April 2018 and any tax due is not payable to HMRC until 9 months and 1 day after the company’s accounting period i.e. not payable until 1 February 2018. Let us assume that the Corporation Tax due is £90,000. If the company goes into a solvent MVL on say 1 June 2017, statutory interest at 8% immediately applies from 1 June 2017 i.e. a daily rate of £19.73 for a tax that is not normally due and payable for another 8 months [1 February 2018-see above]!
HMRC are relying upon a court decision in one of the Lehman Brothers cases [Re Lehman Brothers International Europe Ltd v Burlington Loan Management Ltd (2016) EWHC 2131] for this barmy change in policy, whereby interest, at what can only be described as a penal rate, must now be paid on tax, at a time when the normal tax rules do not require such tax be paid!
The vast majority of MVLs relate to entrepreneurs cashing out their capital, having, as a result of the hard work and risk, quite often over many years, grown their company into a profitable enterprise. So the situation we now have is that such entrepreneurs are to be hit, effectively with a “hidden tax”.
But the bad news does not stop there. What about other taxes that fall due for payment after the commencement of an MVL e.g. VAT, PAYE, NIC and CIS? Tax that may not be due and payable for a number of months, but which is, in effect, an accrued tax liability that now attracts an interest payable rate of 8% pa.
We do not doubt that HMRC appreciate the blatant inequity of the current situation, but we do not expect any changes to rectify the position any time soon. Our advice to clients is to make a large payment on account of anticipated Corporation Tax liabilities just prior to commencing the liquidation process, thereby avoiding the egregious consequence of the latest Lehman ruling.