A squeeze on tax avoidance

gary-pettit

Someone once told me, “I enjoy paying tax because, if I am paying tax then I must be earning money”.

In fairness, most people would agree with the above.  Unfortunately, there has been a long-running battle for HM Revenue & Customs in catching up with those who see it differently.

The Government are planning to introduce policies within the Finance Act 2019-20 that proposes to make directors personally liable for company tax liabilities where the following five conditions are met:

  1. Where a company that is subject to an insolvency procedure or there is a serious risk that it will be;
  2. The company has engaged in tax avoidance or evasion;
  3. The person responsible for the company’s conduct enabled or facilitated it, or benefitted from it;
  4. There is likely to be a tax liability arising from the avoidance or evasion;
  5. There is a serious possibility some or all of that liability will not be paid.

The objective of these policies is aimed at those:

  • Who try to exploit the insolvency procedure to avoid or evade taxes and/or payment of taxes and duties;
  • Repeatedly accumulate tax debts without payment by running them through a succession of corporate vehicles which are made insolvent;
  • Try to sidestep penalties for facilitating avoidance and evasion by going insolvent.

Based upon the five conditions, you can see the policies are aimed at those who act in a deliberate manner of tax avoidance/evasion.  It is not aimed at those who have (say) missed the payment deadline for last month’s PAYE prior to entering into an insolvency procedure or, your overall circumstances demonstrate, as a director, you have acted honestly and fairly to creditors as a whole.

While many have criticised the proposed policies, HMRC have already been increasing investigation activity and a freedom of information request revealed in the 2018/19 accounts an additional £34.1 billion was generated from tackling tax avoidance, evasion or, simple non-compliance.  The first 3 months of 2019, alone, has seen these investigations recover more than £20 million.

The key message that should be derived from the proposed policies is if you feel there is an increasing difficulty in managing the company tax affairs then seek early advice.  HMRC are generally understanding where they learn of a possible issue at an early stage and it is better to engage with them early rather than wait until enforcement procedures commence.

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

 

Golf Day Raises £2051 for Charity

At PBC we are delighted that our Golf Day held in September raised a fantastic £2051 for the Ronald McDonald House Charities. Together with other events we have been able to donate £3761 to such a great charity this year.

PBC Golf Day – in aid of Ronald McDonald Charity Houses

What a glorious day to hold a Golf Day. The sun was shining, Overstone Golf Club was in excellent condition and the event was supported by a great bunch of local Businesses and Professionals.

PBC with the support of Overstone Golf Club hosted 12 teams of mixed ability golfers. Scoring was good with a number of players under handicap. Pink was the colour of the day when it came to the Team Ball competition. It has to be said that this received mixed comments. Pressure of the Pink Ball took its toll on 10 out of the 12 teams as only 2 Pink balls made it home.

The day was all in aid of Ronald McDonald Charity Houses and we would like to thank all those who attended and contributed to the success of the day. We will be announcing the total amount raised for Charity soon.

A round of golf always brings out the competitive nature and on the day we had 5 prizes to play for…….

Congratulations to:

Guy Zarins: Nearest the Pin on Hole 4
Phil Hardcastle: Nearest the Pin in 2 on hole 15
Duncan Nicholson: Winner of the Charity Hole draw
Team Ball: Paul Currie, Tom Low, Jonathan Dolby & Danny Roberts

And the Individual Winner ***** PAUL CURRIE ***** with an impressive score of 43

We are looking forward to Next Year and hope to see everyone again for the 2020 Golf day – details to be announced

TAX AVOIDANCE

HMRC Logo

A squeeze on tax avoidance

Someone once told me, “I enjoy paying tax because, if I am paying tax then I must be earning money”.
In fairness, most people would agree with the above. Unfortunately, there has been a long-running battle for HM Revenue & Customs in catching up with those who see it differently.
Following consultation, legislation received Royal Assent within the Finance Bill 2019. Entitled, “Tax abuse using company insolvencies” it provides for a person to be jointly and severally liable for amounts payable to HMRC where at least one of the following five conditions are met:
1. Where a company that is subject to an insolvency procedure or there is a serious risk that it will be;
2. The company has engaged in tax avoidance or evasion;
3. The person responsible for the company’s conduct enabled or facilitated it, or benefitted from it;
4. There is likely to be a tax liability arising from the avoidance or evasion;
5. There is a serious possibility some or all of that liability will not be paid.
The legislation also provides for where there has been repeated insolvencies and non-payment.
The objective of this legislation is aimed at those:
• Who try to exploit the insolvency procedure to avoid or evade taxes and/or payment of taxes and duties;
• Repeatedly accumulate tax debts without payment by running them through a succession of corporate vehicles which are made insolvent;
• Try to sidestep penalties for facilitating avoidance and evasion by going insolvent.
One example I have seen included directors who had adopted a policy of VAT evasion where they have both been the recipients of 6-figure personal liability notices.
Before you panic this legislation is aimed at those who act in a deliberate manner of tax avoidance/evasion. It is not aimed at those who have missed the payment deadline for this month’s PAYE (provided you do still pay that is) or your overall circumstances demonstrate, as a director, you have acted honestly and fairly to creditors as a whole.
The key message that should be derived from this legislation is if you feel there is an increasing difficulty in managing the company tax affairs then seek early advice. HMRC are generally understanding where they learn of a possible issue at an early stage rather than wait until the need for enforcement procedures commences.
Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

DIRECTORS DISQUALIFICATION – COMMON GROUNDS

The meaning of substantial

I am sure most directors are proud the first time you order business cards (with your title as director). Expanding as you employ staff. But do you know the duties and responsibilities of being a director? Do you consider you are a responsible director?

Hopefully, your answers are, “Yes” and “Yes, of course I am.” Unfortunately, there are a minority who see directorship as a means to personal financial gain at the expense of third parties.

The Insolvency Service has recently published their latest report on director disqualifications which cites 1,242 directors were disqualified in 2018/19. A director can be disqualified for a period between 2 and 15 years and during this time they are unable to act as a director (without permission of the court) or be involved in the management, promotion or formation of a company. Since 2014 the average disqualification is 5.7 years and breaching a disqualification can attract severe penalties, including up to 2 years imprisonment.

There are many grounds for a director to face disqualification but, in general, the common grounds include:

• Trading whilst insolvent to the detriment of creditors.
• Failure to maintain proper books and records.
• Transferring company assets to avoid creditors.
• Not properly accounting for tax/VAT.
• Multiple insolvencies.

The 2018/19 figures include 70 directors who were disqualified for 11 to 15 years, a period referred to as the “substantial disqualifications”. Looking at the substantial disqualifications it is notable the bulk of these disqualifications (66%) were directors aged in their 40-50s. However, two directors who received a substantial disqualification were over 70 years of age, proving the offence(s) prevails over the age of the culpable director.

So, what does it take to become subject to a substantial disqualification? Well, examples cited by Insolvency Service include:

• Being involved in a multi-million-pound VAT fraud.
• A husband and wife team duping businesses into sponsoring unnecessary educational materials.
• Transferring £2.5 million-worth of company assets to her father-in-law.

When comparing the number of corporate insolvencies to disqualifications the number facing this sanction is relatively low. However, I would suggest if you were a victim to one of these people then one incident is one too many, irrespective of whether it is in the minority or not!

A director (or the board of directors) should never be shy in taking advice, whether that is from the company accountant or solicitor, if there are concerns on whether they may be at risk of not meeting their statutory duties. An insolvency practitioner can add to that advice, based upon both current issues and experience. In short, I would advise directors never to assume but seek advice early.

Should you have an insolvency-related issue or a corporate dispute then please contact PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office).

Alternative Dispute Resolution – The cost of disagreement

 

How many readers can remember the Monty Python sketch where a client wants an argument?  The provider says that will cost £10.  The client pays the fee only for the provider to say that will cost £10 please.  Enraged, the client says he had just paid only for the provider to deny receipt and so the debate goes on.

While that sketch is highly amusing the cost of a real dispute can be far from funny.  Some key points with litigation include:

Actual cost

In a recent mediation, the Claimant was seeking damages of £200,000.  When I asked the Claimant’s solicitor about the costs to date, together with the potential adverse costs his client could face I was told the figure had been put at somewhere in the region of £250,000!  It is not the first time this scenario has occurred as all too often the red mist prevails over commerciality or, simply the litigating parties are so far down the dispute path they feel they must now see it through to the end.

“Hidden” cost

Many litigating parties get embroiled in dispute with part of their focus on actual cost, together with the risk of adverse costs awards.  However, how many consider the hidden costs?  This will include your time dealing with the case itself, reading/approving witness statements, endless correspondence, gathering the evidence or having to look back into original agreements.  All of this before even attending court where a trial could last for several days.  Litigation can become a distraction from your daily business operations and be a drain on you generally.

Uncertainty

Outside of costs there is the uncertainties that come with litigation.  Your solicitor will prepare you and your argument in a concise and professional manner that best presents your position.  Naturally, litigating parties both believe their argument represents the facts that should prevail.  However, a judge is not emotionally attached to either side and will generally look at the arguments on a legal, reasonable and practical basis.  This will also include the general conduct of both parties as this could sway decisions, both on the principal argument and cost implications.

Mediation

There is clear guidance coming from the courts that a litigating party who unreasonably refuses to consider Alternative Dispute Resolution, such as mediation, runs a significant risk to an adverse costs award.  In one case I heard about the claimant won £10,000 but, because they were so certain of winning, they refused mediation citing it was pointless because they had a “Cast iron” case where there can be no point of negotiation.  While they were awarded the full amount of their claim that refusal to mediate cost them £30,000 in adverse costs!  A harsh lesson indeed.

Gary Pettit, a CEDR accredited mediator at PBC, says,

“All too often the warring parties are guilty of not seeing the wood for the trees.  In those cases where I have acted as mediator (whether it is an insolvency-related or general commercial disputes) it has been proven the reality of their situation had been lost.  It is the task of the mediator to bring that reality back onto the table as part of facilitating a settlement.”

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Hack it and Whack It

Despite the rain the Hack it and Whack it event went ahead. A mixture of 40 golfers and non-golfers lined up at Brampton Heath Golf Club to test their skills on the driving range and the putting green. Not sure whether we unearthed the next Tiger Woods or Charley Hull but a good time was had by all.

Thank you to all those who braved the day and next time we hope to secure a brighter day.

We are holding our Golf day on 19th September so it would be great to see you there.

Tax efficient or tax avoidance?

As a director you are probably advised to pay yourself a nominal salary with the balance of your remuneration package being paid by way of dividend.  This is perfectly sensible.  It reduces the tax burden and improves cash flow.  However, what happens if you draw dividends when there are insufficient reserves?

There has been a long-running debate on whether dividends are unlawful when there are insufficient reserves to cover them.  Some commentators (like me) always took the view if a director followed independent and professional advice and the payment of dividends was a tax-efficient way of paying remuneration then it should be fine.  Indeed, in recent years court decisions on various matters (such as wrongful trading or malpractice) have generally looked at the position and adopted the view if a person took independent advice and followed it then they have done what any reasonable diligent person is expected to do, irrespective of whether that advice is flawed.

The above approach was continued in a case that was brought before the court where a sole director had drawn some £23,000 in dividends over a financial year.  The company went into liquidation with a deficiency in excess of £173,000.  It was recognised the director took independent advice and acknowledged if there were insufficient reserves then he would have to adjust his remuneration back to salary and account to HMRC for the PAYE/NIC as appropriate.  The court adopted a practical, common sense opinion and the claim against the director was dismissed.  The Applicant (who had “Purchased” the action from the liquidator) appealed.

In Global Corporate –v- Hale [2017] EWHC(Ch) the appeal over-turned the earlier decision, saying,

“If it looks like a dividend and sounds like a dividend, it is a dividend.”

The court of appeal added further clarification in order to clear the waters muddied by the High Court by reaffirming:

  1. Companies must have sufficient reserves to pay dividends at the time they pay them, whether or not they intend to rectify any deficiency at the end of a tax year;
  2. Quantum meruitwill not act as a defence or set off to claims made by companies against their directors;

 

Personally, this decision does not sit well.  After all, in some cases directors may have been taking dividends when something that could not have been reasonably envisaged extinguishes the reserves, automatically making those dividends unlawful.  That, to me, is using the benefit of hindsight, something the courts have frowned heavily upon in the past, making the Global decision a little contradictory.  I am sure there will be some that disagree with me on this but is that not what freedom of opinion is all about?

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk