On 21 July 2021 HMRC published guidance about changes to its liquidation process for corporation tax as part of its work to reduce the administrative burden on Insolvency Practitioners (IPs). The headlines were –
1. “After receiving a notification of liquidation, we will update our system to make these records inactive. This will stop initial and annual notices to file (CT603) being issued, so you won’t have to respond to those communications.”
2. “We’ll write and tell you that we have made the company’s Corporation Tax record inactive and provide you with the company’s Unique Tax Reference (UTR).”
3. “If, during the period of liquidation, there’s been no activity giving rise to a charge under Corporation Tax, you will no longer have to submit nil Company Tax returns or liquidator reports. This will remain the case for the period of liquidation and, under normal circumstances, there will be no requirement to contact HRMC for tax clearance relating to Corporation Tax prior to closing your liquidation.”
4. “HMRC will only contact you if we require a Company Tax Return or any additional information.”
5. “In insolvent liquidations, you will need to be satisfied you have all outstanding tax matters closed before you move to have the company struck off.”
The guidance note published by HMRC can be found here.
With regard to point 3 and one of the questions & responses on the second page of HMRC’s guidance in particular “If, during the period of liquidation, there’s been no activity giving rise to a charge under Corporation Tax, you will no longer have to submit nil Company Tax returns or liquidator reports”, R3’s tax working group have been liaising with HMRC to clarify this position as the distinction between a company with no activity and a company with no charge to corporation tax has not been made. Discussions are ongoing, but the working group would like to provide some clarification around this.
Whilst the guidance currently states that if there is no corporation tax liability the office holder does not need to file a return, this would appear to be the case in dormant / inactive cases only. No activity is when no taxable income of any form is received within the liquidation during the period of office by the office holder. The no activity point is mainly attributed to a dormant company.
In situations where there is taxable income but ultimately no corporation tax liability, e.g. as the result of a claim to offset losses against the taxable income, as things stand, such situations are to be disclosed on a Company Tax return.
Office holders should continue to submit a Company Tax return when taxable income is received in order to make any necessary claims and show why there is no corporation tax liability.
Some relatively common examples are listed below of where a tax return is still required:
- Interest income fully sheltered by current period expenses and/or relevant brought forward losses
- A capital gain fully sheltered by relevant brought forward losses
- A capital disposal which results in a loss
As indicated, the R3 tax working group do appreciate the benefit of reducing the administrative tax filing burden where possible and are working with HMRC to try and establish working practices which could result in reduced corporation tax filing obligations in similar scenarios in the future.