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HMRC internal manual

Enquiry Manual

Close Companies: Settlement Problems: Means Problem

You should obtain appropriate payments on account during the course of the enquiry when it becomes clear that tax has been underpaid. It can help reduce potential difficulties.

Although not insolvent the company may not have the funds to make a standard offer.

When considering means you firstly need to look closely at the company balance sheet, or an up to date statement of affairs prepared for the company. Normally assets such as property and investments will be included on a historic cost basis and could be currently worth more than balance sheet value. However, if the company is forced into liquidation, then the assets are likely to realise far less than current value.

Directors’ misappropriations can represent a significant company asset that should not be overlooked. If a director refunds his misappropriations to the company then the company is almost certain to qualify for CTA10/S458 relief reducing, often substantially, the amount still to pay, which is normally the prime consideration in settlement discussions. You should therefore review the directors’ means, just as though they were funding the offer.

If, because of company and director means, an instalment offer is the only viable option, cash flow projections and business plans should be reviewed when agreeing the payment period. Ultimately, where the directors are co-operative and willing to settle but inadequate means and expected profit levels preclude a normal offer payable over reasonable period, you should bear in mind HMRC’s commitment to business rescue when applying the guidance on tailoring an offer EM6238. You should not unnecessarily force a company out of business.

Sometimes directors of a company are prepared to make an offer themselves in consideration of HMRC not taking action against the company in respect of the tax etc on understated profits that they misappropriated. Usually this might happen when misappropriations were only by one director, who may have ceased to be a director. Even if there is an indemnity clause to the new shareholders we would not refuse offers by directors to meet the company’s liabilities. You should seek advice from contact link about the wording of such offers.