Is the taxman protecting directors of 'dead' companies?

COMMENTING ON the widely held belief that HMRC’s “Time to Pay” scheme has propped up technically insolvent companies during the recession, Nick Lodge, a director of HMRC’s Debt Management and Banking Directorate had some interesting things to say.

“We expect people to pay on time”, he said, “and if they can’t do that, we will consider time to allow them to pay tax if we think the business is viable and we’re certain as we can be that they can make those payments”.

His words may be more significant than he imagined. How so, you ask?

Well, in normal circumstances when a company finds itself in deep financial trouble, and cannot pay its debts on time etc, the directors will be worried about being accused of “wrongful trading” (should their company eventually go bust).

If found guilty of wilfully ignoring the plight of creditors while trading in a technically insolvent position, directors could be personally liable for their company’s debts. This fear often leads directors of failing companies to set in motion a Creditors Voluntary Liquidation – still the most common form of liquidation in this country.

But has HMRC’s assertion that it only allows companies into the “Time to Pay” scheme that are considered “viable”, unwittingly provided a defence to directors of such companies against any future charges of wrongful trading?

If any directors of technically insolvent companies within the “Time to Pay” scheme are thinking along these lines, it may be one reason for the 13% year on year decline in the number of CVLs recorded in the official insolvency statistics. Just a thought…