Every tax payer can organise his tax affairs to minimise his tax liability. In a corporate insolvency every liquidator has a duty to investigate. No one disagrees with either statement.

If the company participated in a tax avoidance scheme or made contributions into an Employee Benefit Trust (EBT) before its eventual demise, what should a liquidator do?

Well – the directors will tell you that “the scheme was revenue approved”, “we had advice from the accountants and followed it to the letter”, “we had counsel’s advice that it worked”, “HMRC didn’t challenge it during their window” and “that’s the end of it”.

It’s not that simple…

Firstly, as any HMRC officer will tell you HMRC do not approve any schemes whether or not they have a recognition number.

Secondly the more elaborate schemes are often not properly implemented. Whilst the taxpayer can organise his tax affairs to minimise his liability, if he is not meticulous, the tax will still have fallen due. Ask a few disaffected employees of multi-nationals whether the sales did actually “close” in Dublin or another different tax jurisdiction that the customers were not aware of.

Thirdly accountants or barristers do not deal in certainty. If there was a risk that the proposed scheme would not be effective (quite often internal emails will betray it) – should there have been a provision in the accounts for the tax liability that may not have been avoided?

Fourthly HMRC can often rely on extensions to the primary enquiry period and its own publicity to dispel directors’ reliance on the expiry of enquiry periods.

Fifthly, HMRC can prove in a liquidation for the full tax liability whether or not it reacted in the enquiry period, if the taxable activity caused the liability to arise.
If the directors have conducted a company’s affairs without reference to the potential tax liability – for example the company buying back its own shares or distributing “profit” to the shareholders, then the liquidator should investigate whether the directors have acted in breach of duty and be made to compensate the company for its loss.

Tackling tax avoidance is a high profile priority for HMRC and a likely area to investigate for the insolvency world for many years to come.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.