It has recently been suggested in the press that HMRC has started using "little known" powers to demand an upfront payment of VAT from companies that have purchased businesses through pre-pack transactions. By demanding immediate payment of sums (to be held as security for future VAT liabilities) HMRC may be accused of financially disadvantaging those companies at a point when they may well be at their weakest financially. Any additional cash drain on such companies may constitute a serious disincentive to undertake pre-pack transactions, as any necessity to fund an upfront VAT payment will of course have to be factored into the costs of doing a deal.
The point has to be made that these powers are neither new nor "little known" and HMRC have increasingly been using these provisions generally where businesses have a poor history of compliance or previous involvement in insolvencies with unpaid tax.
HMRC has a statutory duty to maximise tax revenues for the benefit of us all. On the other hand, pre-packs can save jobs and thereby reduce the cost to the public purse of any insolvency. There may be a conflict here, but perhaps it is no different to the conflict that arises every time HMRC have to consider insolvency proceedings against a defaulting tax payer.
If you have any queries regarding pre-pack transactions or the taxation implications of purchasing a business out of insolvency, please contact us
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The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
