The Attitude of HMRC to Proposals for Individual Voluntary Arrangements
When a self employed trader becomes insolvent and seeks to offer proposals to creditors for an Individual Voluntary Arrangement (IVA), HM Revenue & Customs (HMRC) is highly likely to be one of those creditors. The self employed insolvent trader is likely to have liabilities for tax, national insurance, VAT or overpayment of tax credits. The approach that HMRC takes may be critical to the approval or rejection of such an IVA proposal, particularly when the HMRC debt exceeds the 25% threshold of the total debt owed to the creditors who are likely to vote. It behoves the insolvent trader therefore to consider carefully those factors which HMRC deem to be important in reaching their decision as to whether to vote for or against the trader’s proposal or even to abstain from voting entirely.
If the HMRC claim is of low value, currently less than £8,000, and trading has ceased or the HMRC share of the vote is statistically insignificant then it is likely that HMRC will abstain from voting for or against the IVA proposal.
For trader proposals, the voting decision will be based on the information contained within and supporting the IVA proposal. It is the policy of HMRC to respond, advising of their voting intentions, within seven working days of receipt of the IVA proposal. They make it clear that they do not want to have to consider any proposal more than once. They expect every such IVA proposal to contain a commercial offer of repayment that is both optimal and achievable.
HMRC will routinely reject IVA proposals where the offer is considered to be substandard, a statement of household income & expenditure is not provided, a cash flow statement for the proposed term of the IVA is not provided or insufficient financial and other information is provided to satisfy HMRC’s acceptance criteria.
Even where voluntary payments are not a feature of the IVA proposal, these criteria apply. Where additional information, not contained in the original IVA proposal, is supplied in good time to allow for its consideration, HMRC may alter its vote, but this should not be assumed.
From a workload perspective, HMRC will give priority to new IVA proposals and will not chase up by telephone information that should have accompanied the IVA proposal in the first place. In the event of the adjournment of the Meeting of Creditors (MOC), HMRC oppose additional costs being charged for a second meeting due to the late supply of information.
HMRC will routinely support IVA proposals where debtors are honest in their financial disclosure, make an optimised and achievable offer to creditors, clearly make provision for payment of all future HMRC debts on time, treat all creditors within the same class equally and where there are no exceptional reasons for rejection by HMRC.
HMRC expect IVA proposals to contain the debtor’s true position with regard to assets and liabilities ensuring in particular that the open market value of assets is not materially different from those in the IVA proposal, that the values being placed upon liabilities are not materially from those in the IVA proposal and that the IVA proposal has a real prospect of working.
HMRC may discuss or seek clarifications or explanations prior to the MOC any apparent differences between HMRC’s prior knowledge of the financial position of the debtor and the position outlined in the IVA proposal. They may also seek to discuss and have clarified projected income & expenditure statements, provisions made for payment of all statutory liabilities as they fall due within the lifetime of the IVA, historical information already disclosed in the IVA proposal, financial information that may have been excluded and any other confidential information that influences its decision.
In summary, the insolvent trader should ensure full and truthful disclosure of his or her financial position and seek to get it right first time so as to avoid wasting HMRC’s valuable time and resources in clarifying matters in the lead up to the MOC. It goes without saying that the IVA proposal should be optimized and achievable, containing all the necessary supporting financial information and providing realistic projections covering the expected term of the IVA.