Nightmare becomes reality

[WordIsBond]

One wonders if there is a substantive difference between cases where the company is already closed vs cases, like the one cited, where the company was not yet closed when the IR35 case began/was decided.

I'd think HMRC would prevent MVL if a case was started. But will they even open an IR35 case when the company has already closed? Can anyone cite a single example where they've done that?

[webberg]

My point is limited to situations in which close companies have a tax debt and rather than be paid, the director/shareholder allows the company to fall into insolvency or perhaps elects for that option.

Where the tax debt is PAYE or a PAYE equivalent, there are several sets of rules that permit HMRC (at least in their minds and Manuals) to seek to move that liability to the director/owner.

There are those in Chapters 7/8/9 (and now 10) of ITEPA which deal with intermediaries.

There are those in Part 7A (and now in the last two Finance Acts) that deal with the DR charge.

There are those in the PAYE Regulations at 72 and 81.

The West case is an example of how HMRC consider the PAYE rules to work. They lost but on grounds that are finely balanced and the UTT hearing (whenever that is, and HMRC will be happy to see continued uncertainty here) may reverse it.

However I am saying that the decision shows that the hurdle for trasnfer is high and focuses on whether an individual knew that PAYE was avoided. That can happen only when you know there is a PAYE liability.

The comments above around the establishing of a PAYE liability are interesting and I would agree with. We are looking here however at what happens once the liability is known.

Here, the usual HMRC practice we see in EBT cases and the like, is to issue a Reg 80, claim it's not been paid and issue a Reg 81.

In other words reg 80 is on the comapny, Refg 81 on the individual.

reg 72 operates in a similar manner.

So there is a high hurdle, one that HMRC is seeking to lower, and I predict that we will see this as an area of dispute over the comiing years.

[jamesbrown]

So there is a high hurdle, one that HMRC is seeking to lower, and I predict that we will see this as an area of dispute over the comiing years.

Right, I think we're on the same page, overall, although perhaps not about the significance of the timing (before vs. after a liability is established). I agree that legislation can change, and it will definitely continue to be disputed and new case law established. Also, absent due diligence, I think it would be difficult to show that PAYE had been operated correctly. As nlady mentioned above (IIRC), there will be many that do not conduct this due diligence.

[madame SasGuru]

As nlady mentioned above (IIRC), there will be many that do not conduct this due diligence.

Wrong sockie of wrong former poster but yep there will be a lot of people with no evidence of appropriate due diligence. Equally I suspect most won't know how to handle a tax enquiry and may just pay a demand.

[jamesbrown]

Wrong sockie of wrong former poster but yep there will be a lot of people with no evidence of appropriate due diligence. Equally I suspect most won't know how to handle a tax enquiry and may just pay a demand.

Oops, sorry.

[Maslins]

One wonders if there is a substantive difference between cases where the company is already closed vs cases, like the one cited, where the company was not yet closed when the IR35 case began/was decided.

I'd think HMRC would prevent MVL if a case was started. But will they even open an IR35 case when the company has already closed? Can anyone cite a single example where they've done that?

My anecdotal experience of this from MVL Online:
- we do ask if there are any active enquiries as part of the clearance request...and if there was, well, firstly I'd hope we'd never get involved in the first place if there was...but certainly we wouldn't be able to conclude the liquidation without HMRC's ok they were happy it had been settled to their satisfaction.
- in not too far off 1,000 cases since we started, not once has an HMRC inspection been started after our appointment. Of course that's no guarantee it can't happen...but some people seem to be of the view that putting a company into liquidation would often trigger an investigation on the basis if HMRC don't challenge it then, they never can. We haven't seen any evidence of that.

Theoretically a liquidation that has been completed could be brought back to life by HMRC, but it would be very expensive for them to do so, plus they'd have had to give the ok before the liquidation was complete. Therefore unless some massive new information came to light, I can't realistically see them doing this.

[WordIsBond]

Thanks, Chris. That confirms what I thought all along, so it must be true and completely representative of all aspects of reality.