I read with interest Ollie Ward-Jones’ and Devinder Singh’s plea to widen HMRC’s powers to claw back assets from directors/shareholders of insolvent companies where such companies have run up large tax liabilities before HMRC has been able to take preventative action (‘Tax abuse and insolvency’, Tax Journal, 11 May 2018). It occurred to me that such powers already exist, particularly in relation to tax evasion and fraud, and that similar action might be taken here.
Ever since the introduction of capital gains tax in the 1960s, it has been possible for HMRC to pursue the directors of an insolvent company through the courts where a contribution has been paid to that company’s pension scheme shortly before the company was placed in liquidation and the directors at the time were aware that the company was in financial difficulties and was likely to go into liquidation. Such action is after all CGT evasion, as any eventual distribution to the shareholders after the liquidation would be reduced because less assets would be available for distribution and the resulting capital gain of the shareholders a lesser amount. However, I have the feeling that such potential action by HMRC is not widely known, which may be due to the fact that in my experience in both HMRC and private consultancy over the last 40 years I cannot recall HMRC taking any such case before the courts. I hope I can be proved wrong on this, but the publicity obtained by HMRC from a successful prosecution of such a case would go a long way to deterring such action by directors.
So in answer to the authors’ plea, if tax evasion and fraud are involved, the power to pursue any tax liability by HMRC is probably already there. HMRC should make it known and bring a case before the courts at long last.
John Hayward, pensions author & Tax Journal Editorial Board member
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Reader feedback: tax abuse and insolvency
Dear Sir,
I read with interest Ollie Ward-Jones’ and Devinder Singh’s plea to widen HMRC’s powers to claw back assets from directors/shareholders of insolvent companies where such companies have run up large tax liabilities before HMRC has been able to take preventative action (‘Tax abuse and insolvency’, Tax Journal, 11 May 2018). It occurred to me that such powers already exist, particularly in relation to tax evasion and fraud, and that similar action might be taken here.
Ever since the introduction of capital gains tax in the 1960s, it has been possible for HMRC to pursue the directors of an insolvent company through the courts where a contribution has been paid to that company’s pension scheme shortly before the company was placed in liquidation and the directors at the time were aware that the company was in financial difficulties and was likely to go into liquidation. Such action is after all CGT evasion, as any eventual distribution to the shareholders after the liquidation would be reduced because less assets would be available for distribution and the resulting capital gain of the shareholders a lesser amount. However, I have the feeling that such potential action by HMRC is not widely known, which may be due to the fact that in my experience in both HMRC and private consultancy over the last 40 years I cannot recall HMRC taking any such case before the courts. I hope I can be proved wrong on this, but the publicity obtained by HMRC from a successful prosecution of such a case would go a long way to deterring such action by directors.
So in answer to the authors’ plea, if tax evasion and fraud are involved, the power to pursue any tax liability by HMRC is probably already there. HMRC should make it known and bring a case before the courts at long last.
John Hayward, pensions author & Tax Journal Editorial Board member
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