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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

The Audit Process: PERCET (P) preparation and planning: contrived insolvencies

  • distrainable assets are often minimal, (machinery and premises being owned personally by directors, or by a separate legal entity, and on hire, to the trader);
  • VAT debts remain unpaid and accumulate until the Department takes civil recovery action whereupon the company is liquidated;
  • the true liability is disguised by payment of low assessments;
  • HM Revenue and Customs is the major creditor (trade creditors are usually paid to ensure that a replacement business can obtain goods and credit from the same suppliers);
  • there is a common link between one insolvent company and its successor by way of directors, a manager or other responsible persons; and
  • often the replacement company continues trading from the same premises and supplies the same customers as the previous company, there will be a tendency to use the same bankers, auditors and liquidators.