4. Claims
How HMRC issue claims to insolvency practitioners, and how VAT penalties and interest apply.
Once notified that a VAT-registered business has become insolvent, we will calculate our claim based on the amount outstanding at the date on which the business became insolvent. You can get a more detailed breakdown of the claim from the issuing office.
The relevant date is the date which establishes our claim in the insolvency. The claim will include VAT up to the day before the relevant date.
When the business continues to trade, the office holder will have responsibility for the VAT affairs of the business from the relevant date onwards. Exceptions to this are:
- bankrupts continuing to trade
- voluntary arrangements
- deeds and schemes of arrangement
- county court administration orders
We will issue an amended claim if there are any adjustments made to the insolvent trader’s pre-appointment VAT account which affect our original claim.
The amended claim liability will supersede the original claim notification.
If a VAT Return has not been submitted for any VAT accounting periods falling before the relevant date, the tax liability for the periods may be assessed by a computer calculated assessment.
We may withdraw this type of assessment once an acceptable VAT Return has been submitted.
If you require a duplicate return you should contact the appropriate HMRC insolvency team for the insolvency type concerned using the contact details in section 1.4. We reserve the right to verify the accuracy of any returns received.
Assessments relate to individual prescribed accounting periods. They’re normally issued as the result of:
- under or over declarations of VAT discovered during an inspection of the VAT records
- the best available means in the absence of records
- a declaration by the trader
Each assessment line corrects the liability previously declared or assessed for the relevant accounting period.
Error correction notifications (formerly known as voluntary disclosures) by the registered trader, or by the insolvency practitioner, of amounts which have been under or over declared follow the same pattern.
Subject to time limits we have the right to assess the tax liability for any period when a return has not been submitted or if there’s evidence that tax is due.
You can find information on default interest for VAT in Default interest (Notice 700/43).
Interest is also chargeable on assessments and voluntary disclosures for:
- Air Passenger Duty
- Insurance Premium Tax
- Landfill Tax
- Climate Change Levy
- Aggregates Levy
4.5.1 Civil penalties or criminal penalties
Civil penalties can be raised for various reasons including:
- late notification of a liability to be registered
- inaccuracies on taxpayer’s returns or documents
- breaches of regulations
- dishonesty
Criminal penalties can also be raised if a criminal offence is committed. These penalties will be raised by the courts and will not be included in our insolvency claim.
Penalty interest can also be charged for late payment of:
- Landfill Tax
- Climate Change Levy
- Aggregates Levy returns
It’s also chargeable on:
- tax or levy assessments
- penalties
- interest
- penalty interest in relation to Landfill Tax, Climate Change Levy and Aggregates Levy
In bankruptcies and compulsory liquidations the office holder can request a proof of debt from the Enforcement and Insolvency Service. You can find the relevant addresses in section 1.4.
Process for submitting a proof of debt
HMRC will not submit a proof of debt to you until all relevant returns have been filed.
Outstanding returns at the date of your appointment should be submitted in the usual way. Do not submit any tax returns by email to the MVL team.
Being in an MVL is not a reasonable excuse to file returns in an alternative way.
Companies in MVL generally owe more than one type of tax (for example, VAT, PAYE and Corporation Tax) and are required to file more than one type of return. You should allow 12 weeks from the date all of your returns have been submitted before requesting a proof of debt.
You should make the request using the MVL query tool.
We’ll respond within one month of receiving the request and either:
- provide the proof of debt
- explain the reason for any delay with your request
Dealing with HMRC effectively
To make sure debts and interest in MVLs are paid within the statutory 12-month period, you should:
- file all outstanding returns as soon as you can
- take into consideration that processing times are different for different tax returns — use the MVL query tool to escalate if a proof of debt is not received within 12 weeks of the final return
- make sure you respond to any correspondence as soon as you can — if you do not, this may delay a proof of debt being submitted
Since 6 December 2023, HMRC no longer provide tax clearance in MVL cases.
Statutory interest
You should calculate and pay the relevant amount of statutory interest to us.
Once all returns have been submitted and the relevant tax paid, you should submit your statutory interest calculation through the MVL query tool.
We will respond within one month of receiving the calculation and either:
- provide you with the relevant payment reference and bank details so you can make payment
- query the calculation, tell you what we think is the amount due, along with a relevant payment reference and bank details
You should not pay the statutory interest with the principal tax amount or without us providing you with payment details as this may cause delays and incorrect repayments. For example, if our system treats the statutory interest as a tax overpayment, it may cause an incorrect automatic repayment.
Use of Notices of Intended Dividends (NOIDs) in an MVL
Since the end of MVL clearance on 6 December 2023, there has been an increase in NOIDs submitted by insolvency practitioners under Rule 14.29(1)(b) Insolvency (England and Wales) Rules 2016 (IR16). HMRC’s view is that immediately issuing a NOID upon appointment in an MVL is inconsistent with this rule because a reasonable time has not passed to allow creditors the opportunity to submit a proof of debt.
Rule 14.39(a) IR16 makes it clear that in the calculation and distribution of a dividend, the office holder must make provision for any debts which are the subject of claims that have not yet been determined. If returns have not been submitted then you would need to retain enough funds to meet our debt.
We would not expect to receive a NOID in cases where outstanding returns have not been submitted. We will:
- wait for outstanding returns to be submitted before submitting a proof of debt
- not respond to NOIDs in cases where we have told you that returns remain outstanding
Rule 14.29 IR16 states you should issue a NOID to MVL creditors who have not proved. We would not expect you to incur unnecessary costs to issue NOIDs to creditors who have already proved.
You should submit a NOID when both of the following apply:
- you’ve not received a proof of debt
- 12 weeks have passed since you submitted your final return
A NOID should be submitted to us through the MVL query tool using an individual notice for each company.
If you include multiple companies in one notice and consolidate your submissions, this may delay processing and raise data protection concerns.