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HMRC internal manual

Enquiry Manual

Close Companies: Settlement: Preferred Company Route

Where, after enquiry EM8601, there is little evidence one way or another, the department’s preferred line is to treat money extracted as additional company profits with the extractions treated as loans to the participators. The circumstances of the case may play a very important part in your decision.

In continuing cases where the company is apparently solvent, the company route should be the preferred approach. However, in view of the longer timescale involved and the cost to the Exchequer of the increased use of insolvency legislation as a way of escaping the consequences of an enquiry, you should seek a ‘joint and several’ offer for instalment arrangements EM8734.

If the company appears to be insolvent, and/or the directors seem prepared to let it go into liquidation or allow it to cease trading and become dormant, Corporation Tax CTA10/S455 liability still remains the preferred settlement route. An acceptable offer must be ‘joint and several’ EM8734. However, if a joint and several offer cannot be obtained the employment income approach may be the only way HMRC will be able to obtain a settlement. However, the option of the employment income route will not be available if protective Corporation Tax and/or CTA10/S455 assessments have become final.

A ‘joint and several’ Corporation Tax/Section 455 offer may still be possible for a company in liquidation. The offer has to be made by the liquidator and the participators who extracted the money from the company EM8731.

Often, it is not possible to predict until the settlement stage the appropriate settlement route. It is, therefore, a sensible precaution to link the director with the company at all stages, for example by including the director’s name along with the company’s name in correspondence where the same agents are acting for both when possible. Where formal action is likely, the possibility of the employment income approach should be established by making alternative discovery assessments on estimated remuneration at the same time as discovery assessments on the company. However, nothing should be done during the course of the enquiry that might prejudice HMRC’s right to proceed on alternative lines if settlement difficulties emerge.