Talk to us today in confidence0800 970053907833 240747

HMRC and the CVA Process

Written by Keith Steven Managing Director 24 May 2022

HMRC and the CVA Process

We have heard that HMRC will not support a CVA?

Now, since 2021 that HMRC has become a preferential creditor in insolvency, I have heard insolvency practitioners say that HMRC will not support a company voluntary arrangement. Is this true?

No, it is not true. Having been involved in company voluntary arrangements and advising directors on their options since 1996 we can safely say that HMRC will take each case on its merits.  

  • Is a CVA the best option for creditors? 
  • Or is administration or liquation the best outcome? 

It is for the insolvency practitioner and the directors to work that out together.

HMRC will approve company voluntary arrangement proposals if they are properly structured, well thought through, supported by a detailed financial forecast and a statement of affairs and comparisons of outcome to show the difference between liquidation or a CVA. But one of the key tests is this:  IS THE BUSINESS VIABLE?

Additionally, HMRC will not support CVAs when there has been poor management, lack of financial information, regular late filing of tax returns or annual accounts and lots of tax arrears going back for a long time. We call this the compliance test.

The fact that they are secondary preferential creditors, in my view, will not count for too much except that it may make them more likely to accept CVAs where there is a good dividend outcome and evidence of viability. “What will management change to make the CVA and the company successful” is their key question, not what will preferential status mean for HMRC’s recovery.

So, the key decision for all directors is to decide whether the business is viable, subject to being restructured and costs cut perhaps, not whether HMRC is a preferential creditor. In our view the focus should be on what is a sensible outcome for the creditors, what changes will the business and management need to make to make the CVA a viable proposition, and putting the best foot forward in essence. It is not enough to simply say “well you will get less in liquidation”.

The HMRC Combined Voluntary Arrangement service has long experience and expertise in looking at all voluntary arrangements in the United Kingdom. A high-quality proposal has a better chance of being approved than a blunt “take it or leave it” approach that may advisors seem to take. Many say how much is the overall debt and then simply divide that by 36 and there is your CVA monthly payment?! Is that affordable?  Our team will work carefully with you to produce flexible financial forecasts that ask the “what if” questions that change requires. This is good CVA management and good CVA planning.

HMRC  being a secondary preferential creditor will mean that all contributions made into the CVA scheme will be allocated to HMRC until it is paid 100p in £1, the remaining contributions will then be paid to the other unsecured creditors. The same process existed in the period between 1986 and 2003, therefore KSA was writing CVAs with this debt repayment structure for many years prior to the change in September 2003.  Our prediction is that CVAs will still be acceptable to HMRC, but the QUALITY of the CVA proposal and a viable company, with good management will always stand a better chance of approval. So choose your CVA advisors wisely!

To speak to the UKs leading CVA experts please give us a call or click here to chat. Our website has been providing assistance to directors for 20 years this year and we have been helping directors with their company problems since 1996. We know quite a lot about CVAs, having been advisors to thousands of companies in that time, see some example here CVA Case Studies

Category: What is a CVA or Company voluntary arrangement?

A Worried Director

The Ultimate Guide For Worried Directors

Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539

"KSA Group which owns this site, will help you fix problems in your business. We won't charge for any initial advice or face to face meetings. We speak in English. We will save you money and your precious time.  You can come to any of our offices

"We also follow up any meeting with a full "solutions report" which runs on average to 13 pages valuable free advice!!  No other practitioner offers this service.  In this report we advise on ALL the options and explain them clearly.  We advise on a course of action given the information you have given us ( the more information we have the better we can advise!)"

You are currently offline. Some pages or content may fail to load.