REV BN 15: Changes to Tax Rules During Insolvency Procedures
Who is likely to be affected?
1. These changes will affect companies in liquidation and administration. In most cases, the changes will affect companies that go into administration under the new rules introduced by the Enterprise Act 2002.
General description of the measure
2. The measure makes technical changes to the tax rules that apply to companies in liquidation and administration. These are necessary for implementation of the insolvency measures in the Enterprise Act 2002.
Operative date
3. Apart from the changes to the rules on Loan Relationships (which will commence on 9 April 2003), the changes will come into effect on the same day that the company law changes come into effect. It is expected that these rules will be introduced later this year.
Current law and proposed revisions
Accounting Periods for companies in liquidation
4. At the moment, when companies go into liquidation, their accounting periods (the basis periods for which corporation tax is charged) are automatically set to last 12 months each until the company is finally wound-up.
5. For any liquidation ending on or after the date of the introduction of the new administration rules, if the company ceases to be in liquidation without being wound-up, the 12-month rule will cease to have effect.
Accounting Periods for companies in administration
6. At the moment, when a company goes into administration, there is no impact on the accounting periods of the company.
7. For any company that goes into administration on or after the introduction of the new rules, the commencement of the administration will mark the start of a new accounting period. Also, the date that a company comes out of administration, will mark the end of an accounting period.
Proper officer during administration
8. The `proper officer' is the person who, for the purposes of the Inland Revenue, acts on behalf of the company. Generally, the proper officer is the company secretary, although in liquidation cases, the proper officer is the liquidator.
9. For any administration entered into on or after the introduction of the new rules, the proper officer will be the administrator. Where there is more than one administrator acting, then they will be able to nominate just one of them as proper officer, otherwise, the Inland Revenue will make a nomination.
Rates of tax for companies in administration
10. Currently there are rules which enable companies in liquidation to work out their tax liabilities based upon the previous year's tax rates, and to make self assessments early. This enables liquidators to settle the affairs of the company quickly.
11.Similar rules are being introduced to cover companies in administration. These will take effect for administrations entered into on or after the introduction of the new rules, and will enable all parties to speed up the process of administration.
Loan relationships
12. Where a company has gone into liquidation, the special rules applying to loan relationships between connected companies are overridden.
13. For any liquidation in place on or after 9 April 2003, that override will only be in place while the company remains in liquidation.
14. There will also be a minor change to reflect the new ways in which companies go into administration.
Further advice
15. If you have any questions about this change, please contact the Public Enquiry Unit on 020 7438 6420 to 6425.
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