Company Voluntary Arrangements (CVA) and HMRC considerations

Where a company is facing financial difficulties and is at risk of insolvency but there is a viable business, one option to be considered is a Company Voluntary Arrangement (CVA) which is an informal arrangement between a company and its creditors where creditors are paid all or part of the debt due to them over a fixed period through a licensed Insolvency Practitioner (IP).

The company’s directors, with help of the IP, will prepare a CVA proposal to be put to creditors which details the proposed CVA terms and a proposed payment schedule with the amount the company would be able to repay to creditors.

If 75% of the creditors (by debt value) who vote ‘agree’ to the CVA, it is approved and the IP is appointed to be the Supervisor of the CVA.  Payments to creditors are made by the Supervisor until debts are settled per the terms of the CVA.  Creditors bound by the CVA are stopped from taking any further action against the company.

A CVA enables the company to continue trading under the control of the directors and retain control of its assets and the Supervisor ensures that terms of the CVA are adhered to by the company.

General considerations

Any CVA proposal must have a real prospect of being approved by creditors and there should be full and honest financial disclosure to the creditors.  Creditors should be informed of the company’s true asset and liability position in the CVA proposal.

HMRC involvement in a CVA

HMRC may have an outstanding debt due by the company and could be a significant creditor.

HMRC has a specific Voluntary Arrangements Service to consider any CVA proposal where HMRC is a creditor and has specific requirements when HMRC’s approval is being sought.

Information required by HMRC

HMRC will require the following information to be provided with the proposal:

  • a detailed business cash flow forecast and a projection for at least the first 12 months of the proposed CVA
  • a statement of assets and liabilities (including taxes)
  • reliable or professional valuations
  • submission of all previously overdue tax returns
  • full reasons for past non-­payment of tax
  • a clear explanation of any changes made to enable payment of post-approval HMRC liabilities as well as CVA contributions.

HMRC support of a proposed CVA

HMRC will review the CVA Proposals and will support a CVA where:

  • a company is honest in their financial disclosure
  • an optimised and achievable offer is made to creditors
  • provision is made for payment of all future debts on time
  • the proposal treats all creditors within the same class equally
  • there are no exceptional reasons for rejection.

Modifications or Rejection by HMRC

If HMRC finds the CVA proposal inadequate, HMRC may propose modifications or decide to vote against the proposal.

If HMRC raises any concerns which are not allayed within the timescale notified, HMRC will not support the proposal.

HMRC is likely to reject a CVA where there is evidence of: 

  • evasion of statutory liabilities or past association with forced insolvency
  • withholding sums due to HMRC whilst paying other creditors.
  • a proposal which includes the sale of HMRC debt
  • a proposal which does not provide cash dividends 
  • failure to meet obligations under a prior CVA
  • exclusion of creditors entitled to receive the same treatment as all others within their class
  • a purchaser assuming responsibility for payment of some of the debts in consideration for the purchase of assets or
  • a proposal by any member of any organisation that requires debts owed to its members, to be paid in full, whether inside or outside of the CVA or before or after the completion of the CVA when all other unsecured creditors will become bound to accept a compromise of their debt.

Subsequent risk of formal insolvency

A company will be at subsequent risk of a formal insolvency procedure where:

  • the CVA is not approved by creditors or
  • the CVA has been approved but the agreed payment schedule has not been met during the course of the CVA.

Get in touch

Shona Campbell

Shona Campbell

I head up the Business Recovery and Insolvency team at Henderson Loggie and have over twenty years of experience advising businesses, the majority of that time dealing with businesses facing some form of financial difficulty….
Margaret Linn

Margaret Linn

I have 25 years’ experience working in Insolvency, both personal and corporate.  I advise individuals and company directors who find themselves in financial difficulty and am committed to finding a tailored solution that serves the…
Lianne Fraser

Lianne Fraser

I am an ACCA qualified Assistant Manager in the Business Recovery & Insolvency team and joined Henderson Loggie in 2020.  I have 9 years’ experience in the administration of corporate insolvencies (Administrations, Court and Creditors’…