HMRC Voluntary Arrangement Service and CVA

10 November 2020

HMRC Voluntary Arrangement Service and CVA

HMRC refuses a time to pay deal, so surely they will refuse a CVA too?

This is a question we come across all the time! 


When you have been talking to the enforcement department their primary objective is to collect 100% of the tax owed. This is their role. If they cannot collect 100%, then they will take all necessary action to collect arrears of taxes and this could eventually result in them issuing a winding up petition if they don't succeed in getting payment. 


Many companies do not pay the tax they owe because they would rather use the cash to fund cashflow and the tax office is pushed down the list of priorities. As tax payers it is reasonable to expect HMRC to be tough on these companies! Remember, if this is a debate you are having then the company is probably insolvent and you must act fast. Take the online Insolvency Test here

So, the HMRC collection and Enforcement process is robust - so it should be! Often HMRC will agree a time to pay deal for tax arrears and this can be a real life saver for SME companies. If this is abused, or the ongoing new tax payments fall behind, or the TTP scheme just falls down we now see HMRC taking fast action to recover the WHOLE debt.


As a company voluntary arrangement is a formal insolvency process the "case" is then taken out of the hands of the enforcement department and is referred to the Voluntary Arrangement Service or VAS. Effectively as 100% collection is now unlikely, VAS has to judge whether a CVA is a fit, fair and feasible alternative to winding up. Note: the last line of the aims of the VAS as published on the HMRC website. They WANT to help rescue viable companies!

But they need to see a viable plan for the company so that they are satisfied that tax revenues can be restored. It is putting this plan together, overseen by our CVA experts with hundreds of CVAs behind them, that we can help you with. We talk to the VAS almost every day. 

From the 1st December 2020, HMRC will become preferential so this will mean that they will come before other creditors for taxes such as PAYE and VAT in any insolvency process.  This is likely to lead to a lower return for unsecured and trade creditors but it may well not change how they vote.


So the answer to the question is this, VAS can agree a compromise of the debts and a partial write off of taxes owed, if the CVA is well structured, whereas the collectors and enforcement CANNOT.

For more details on the CVA process please visit this page our page on detailed CVA

Categories: What is a CVA or Company voluntary arrangement?

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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading.  A new 20 day moratorium for distressed businesses has also been introduced. 

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