Since 2021, when HMRC became a secondary preferential creditor in insolvency, a common misconception has emerged that they will no longer support a CVA. Having advised directors since 1996, we can safely say this is not true. HMRC takes each case on its merits.
HMRC’s primary goal is to help rescue viable companies to ensure long-term tax revenues are restored. They don’t just ask “how much is the debt?”—they ask, “What will management change to make the CVA and the company successful?”
As a formal insolvency process, your case is referred to the Voluntary Arrangement Service (VAS). They evaluate whether your Company Voluntary Arrangement proposal is fit, fair, and a better alternative to liquidation.
| HMRC Approval Factors | Reasons for Rejection |
|---|---|
| Proven Viability: Detailed forecasts showing the business can survive. | Poor Compliance: History of late filings or ignored tax returns. |
| Better Creditor Outcome: Proving a CVA pays more than liquidation. | Ongoing Arrears: Failure to pay new VAT/PAYE during the drafting period. |
| Proper Structure: A well-thought-out plan, not a “take it or leave it” offer. | Lack of Information: Missing financial data or poor records. |
To secure a “Yes” vote from HMRC, your proposal must satisfy three specific compliance tests:
This is the ultimate litmus test for viability. During the period your CVA is being drafted, you must pay all new PAYE and VAT liabilities as they fall due. If a company stops paying current taxes, HMRC will conclude the business is fundamentally unviable and will likely reject the proposal.
HMRC looks for a commitment to transparency. While they understand that businesses hit rough patches, they are far less likely to support Company Voluntary Arrangements where there has been a consistent history of late filings, missing annual accounts, or tax arrears that go back many years without communication.
A major factor in “fairness” to creditors is the treatment of directors’ debts to the company. If there is a large overdrawn director’s loan account, HMRC will generally expect this to be repaid into the CVA “pot” over the course of the arrangement. Repaying these funds demonstrates that the management is committed to the rescue and that the process is fair to all creditors.
Our website has been assisting directors since 2000. We understand exactly how to structure a proposal that meets the strict requirements of the Voluntary Arrangement Service. We don’t just provide a repayment plan; we help you build a viable future for your company.
To discuss your options with our experienced team, call us today
Written ByKeith Steven
Turnaround Director
Keith is the Turnaround Director of RMT Accountants & Business Advisors. Prior to being acquired by RMT his company KSA Group has undertaken more than 300 CVA led rescues. Read our case studies to see how.
