Dealing with HMRC when proposing an IVA

News and Blog

Hello and welcome back to our weekly insolvency blog.


This week we are tackling the subject of dealing with HM Revenue & Customs in respect of Individual Voluntary Arrangements ("IVA").


The reason we have chosen to highlight HMRC's participation in approving IVAs is because they are most usually the largest, or one of the largest creditors, in the majority of IVAs.


As a result of this, HMRC have developed their own guidelines about when they will and will not accept an IVA and it is those guidelines that we will be looking at today.





The most important issue that we have found in our years of liaising with HMRC has been their requirement that all previously overdue tax returns have been submitted.


This may not be a large undertaking in many cases however there are certain Debtors who will have many years of returns outstanding and therefore bringing these Returns up to date can take a significant amount of time and therefore needs careful planning.


The preparation of all the outstanding Returns up to the date of the IVA creditors meeting will allow HMRC and the Debtor to know the true debt owed. In some cases, where estimations have been issued by HMRC, the preparation of the Returns may even reduce the debt owed.





For Sole Traders, HMRC will ONLY support an IVA where a detailed cash flow forecast for at least the first 12 months of the proposed arrangement is supplied.


This can be a key sticking point and one that must be adhered to, to prove to HMRC that the proposal has a serious chance of success. Many Debtors who have instructed us previously have not provided detailed cashflows. They have produced an A4 piece of paper with 12 lines stating "Income X, Outgoings X".


This is nowhere near the detail required, however they do not want to put the effort in to produce the required cashflow and have paid the ultimate price, as HMRC rejected each of those IVAs.


The cashflow needs a detailed breakdown of income and expenditure, showing a provision for taxes. It is worth employing your accountant at this stage to assist you in preparing such a document. If the cashflow can be prepared with professional assistance, the more benefit it will have.




Similar to the business cash flow, all individuals must provide a schedule of their household's monthly income and expenditure. This assists HMRC in assessing whether there is any surplus income that could be offered into the IVA.


However, if the Debtor is already putting forward their best offer to creditors, this should have already been assessed and will therefore back up the monthly sum the debtor is offering. Alternatively, it will evidence that the Debtor has no surplus income to offer.





In many lump sum IVAs, the house is the asset being realised. Accordingly, it is important that a professional valuation is obtained. Regularly, Debtors rely on estate agent's free valuations. However, we have found that if a Debtor incurs the cost of a Chartered Surveyor's valuation, that can be appended to the IVA document, supporting the accuracy of any IVA proposal and means that HM Revenue & Customs are more likely to accept the proposal.





One situation in which HMRC will not vote to approve an IVA is where they have concerns regarding the Debtor's conduct in connection to past tax compliance.


Where there has been prior tax compliance issues in the past, it is possible to put forward measures to allay any concerns that HMRC may have that the tax position is likely to worsen.


Such steps could include:


a.   A sufficient sum is put into a bank account, prior to the approval of the IVA, by the Debtor solely for use to petition for the Debtor's bankruptcy in the event that they breach the terms of the IVA by not keeping up to date with Tax return and tax payment dates post approval of the IVA.


b.   A Tax Savings account is set up and sufficient sums are paid into the account on a monthly basis to ensure that all future tax liabilities are paid on time.



As you can see there are many issues to be tackled when putting forward an IVA where HMRC are a material creditor and should you wish to discuss these in any further detail, please do not hesitate to get in contact. Telephone: 01326 340579, Email: