HMRC have recently informed us of a new voluntary procedure that they are adopting that we find rather concerning. 

As you will know it is the duty of an office holder of any insolvent estate to do his best to recover any balance due to the estate, whether that be a balance due from a customer or any other person or indeed a director on his loan account.  The same duties of the office holder apply regardless of who the money is owed by because it is the duty of the office holder to do his best to maximise the estate for the benefit of his clients, the general body of creditors.

Sometimes the office holder may decide that any such balance owed to an insolvent estate is not worth pursuing because it is not in the commercial interests of creditors to do so.  If he forms such a view he will report to his clients, the creditors, in the usual way, in his progress reports to creditors and thereby they, the creditors, will be given an opportunity to engage with the office holder if they think that his decisions in this regard are not in the best interests of the general body of creditors.  The office holders’ duties are to the general body of creditors as a whole.  The legislation lays down the framework in which he engages and reports to that body and he does not favour one creditor over and above another creditor except to the extent that he recognises and complies with the order of priority (as laid down by legislation) as regards the payment of dividends to the different classes of creditors in an insolvency process.

HMRC are now “inviting” insolvency practitioners up and down the country to subscribe to a voluntary procedure to send their final reports (when they are acting as office holders) to a specific email address of HMRC when those reports disclose that a balance on a directors’ loan account has been written off by the office holder so that HMRC can then send what they describe as a “nudge” letter to the director advising them to disclose “the income” on their next self assessment taxreturn pursuant to Section 415 of the Income Tax (Trading and Other Income) Act 2005.  To be fair to HMRC this voluntary procedure is voluntary and they have said to us that we do not have to comply with it.  We shall not be so doing.  Whether the writing off of a balance due from a director to an insolvent estate is income in the hands of a director or not is not a matter which the office holder of an insolvent estate should in any way get involved with.  It does not concern him.   It is for HMRC to form any views on that matter which it may wish to form and it should and will receive a final report from an office holder of an insolvent estate in exactly the same way that all the other creditors of that insolvent estate receive that final report without favour or preference. 

It is clear that HMRC are continuing to try to find as many ways as they can to target matters or issues which they do not like.  Should we receive any further information about this concerning development, we shall let you know.  In the meantime, do not hesitate to get in touch if you have an issue that this development might impact on.  We are here to help.