For directors considering putting their solvent company into liquidation we would recommend paying all liabilities to HMRC in advance of winding up, even if the amounts paid are estimated, pending figures being finalised post liquidation. The reason for this advice is a change of policy of HMRC that now requires statutory interest be paid on Corporation Tax (CT) where it is paid post liquidation even if it is paid before the normal due date.
HMRC are relying on a decision in one of the Lehman’s cases for this change in policy. That case indicated that statutory interest was due on both future debts, and contingent debts, and since CT payable on a normal due date after the commencement of a liquidation is a future debt then statutory interest falls due. While that judgement related to an Administration HMRC are arguing that in view of the similarity in wording in the legislation then it applies equally to liquidations. The standard letter that they are sending to liquidators with the demand for statutory interest says:
“Our understanding of the correct treatment of statutory interest derives from the decision of David Richards J in Re Lehman Brothers International (Europe): Lomas v Burlington Loan Management Ltd. In a supplemental decision, he restates his conclusion that “interest under Rule 2.88 (statutory interest) is payable on future debts and on the amount admitted to proof in respect of contingent debts from the date on
which the administration commenced”.
We appreciate that these decisions related to Administrations but given that the provisions set out in Rule 2.88 of the 1986 Rules were mirrored by Section 189 and Rule 4.93 and are repeated in the current Rule 14.23 (with Section 189 still applicable) they would appear equally applicable in a winding up.”
This is effectively a hidden tax on entrepreneurs since HMRC are receiving interest that would not be due other than for the decision to cease trading to permit the members to extract their capital from the company.
Finally, there are rumours in the industry that statutory interest will also be payable on any other taxes that fall due for payment after the commencement of the liquidation, such as VAT, PAYE and NIC. So to avoid the risk of 8% interest being claimed by HMRC from the date of liquidation to the date of payment we would strongly recommend that all liabilities to them be paid in advance of winding up.