Goodbye to Tax Clearance: A Shift in Responsibility for MVLs

By Graham | December 9, 2023

HMRC Cease Providing Tax Clearance for Members’ Voluntary Liquidations

Effective immediately, HMRC will no longer provide pre- and post-tax clearances for members’ voluntary liquidations (MVLs). This change, announced in HMRC’s Insolvency Guidance on December 6, 2023, shifts the responsibility for determining tax compliance to insolvency practitioners (IPs), who must rely on their professional judgment to conclude MVLs without official tax clearance.

The decision to discontinue tax clearance stems from the absence of a statutory or best practice framework governing HMRC’s issuance of such clearances. To compensate for this lack of formal guidance, the guidance provides IPs with alternative methods for assessing the accuracy of a company’s tax liabilities:

Sworn declaration: The statement of assets and liabilities provided by the company’s directors.
HMRC compliance checks: Ongoing reviews by HMRC into the company’s tax affairs.
Pre-insolvency debt claims: Notifications from HMRC regarding any potential pre-liquidation liabilities.

It is anticipated that IPs would already have established the tax position during the preparation of the declaration of solvency, and their ongoing involvement in the liquidation process will inform their understanding of post-appointment tax matters.

While some IPs may express dissatisfaction with this development, it is expected to expedite the completion of MVLs that have been hindered due to HMRC’s capacity constraints in processing clearance requests. Additionally, the caveated nature of tax clearance letters often raised questions about their true value.

Overall, this change aims to streamline the MVL process and promote efficiency, while also placing greater reliance on the expertise of IPs in assessing tax compliance.