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Wednesday, 12 May 2010

Owe more than £1m in PAYE/VAT? Expect an Independent Business Review

This is a really interesting discussion page on HMRC's web site.

If a company owes more than £1m in tax arrears then the HMRC stance in future MAY be to demand that an IBR (Independent Business Review) be carried out.

The IBR process is being discussed and no final policy decision made, the debate is wide ranging, but highlights the key issues. Who does the IBR? Who instructs or engages the IBR team and pays for it? What happens if the IBR is wrong? Will there be a panel system of insolvency firms?

The debate will rumble on and we await a policy decision.

In some ways we at KSA are doing this type of work already, we often provide highly detailed forecasts and SOFA's (statement of affairs) to our clients in advance of a final decision being taken on the options like CVA (company voluntary arrangement), administration or refinancing.

Sometimes, this work allows the board to make well educated decisions to restructure without insolvency techniques.

One of our clients, a south east based environmental services company, is a good example. HSBC had been approached for a new EFG (Enterprise Finance Guarantee) loan, the company had arrears of taxes and one of the conditions of the EFG loan system is that it must not be used for payment of such tax arrears.

An investor was willing to invest to "re-balance" the balance sheet and improve cashflow. However, he was unwilling to invest blind. HMRC was in the process of issuing a winding up petition.
KSA prepared a modelling pack and statement of affairs for the company and the investor. We also modelled various versions for CVA, Administration etc. We negotiated a holding position with HMRC to ensure that no action was taken. This satisfied the investor and he duly made the investment taking a 30% stake. In time the EFG loan was made and the business, which has sales of c£10m, has grown quite well.

If things change then we have already, prepared the ground for a CVA.

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