On 1 November 2023, HMRC published some new guidance outlining the approach they will take to restructuring proposals provided by companies, such as restructuring plans under Part 26A of the Companies Act 2006.
The guidance is short and without frills but does offer some key points for companies to ensure they consider when looking to restructure debts given HMRC’s status as a key creditor. The guidance also reflects some of the key lessons that have developed from Part 26A case law to date where HMRC engagement has been crucial to the success or failure of plans.
Firstly, HMRC is clear that they will only support restructuring proposals where they believe there is a “realistic chance of succeeding” (emphasis added). They outline that companies must be prepared to explain why they consider the plan to be realistic and in particular that HMRC will critically examine projections of future income and expenditure, comparing it to previous history and assurance. All tax returns must be filed and HMRC need to be satisfied that the company will be able to pay future debts to them as they are due.
The guidance therefore makes clear that companies and their advisers need to be mindful of previous dealings and filings with HMRC and be prepared to explain any previous issues with taxes, as well as to defend future assumptions and calculations. Robust figures and independent evidence are crucial.
Another consideration of HMRC highlighted is the approach taken to payments of other creditors ahead of HMRC and whether this is justified, as well as looking at whether the company has “dealt fairly with payments to creditors during the period” and if part of a group, has “reasonably apportioned debt or risk within the group”.
Ultimately, the key point to take from this guidance, as indeed from the case law it reflects, is that HMRC support for restructuring is possible, but early and open engagement with HMRC is essential.