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Making Tax Digital: the implications for insolvency and restructuring processes

The calling of the June general election had, as we have seen, a number of unforeseen consequences. One of those was a delay to the government’s flagship Making Tax Digital (MTD) programme, which “aims to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.” As one of the more controversial measures in the then Finance Bill which was making its way through parliament, the government was forced to remove it to ensure the Bill could reach the statute book ahead of the general election.

Given the huge change that the MTD programme represents for the tax system in the UK, many accountancy and business bodies, including R3, expressed a wish to see the reforms progressed at a suitable pace in order for businesses to have time to adapt to the changes. But while businesses will now have an extra year to implement the changes, it is clear that the government intends to press on with these reforms.

Indeed, today (Thursday 13th July), the government announced its next steps for the MTD programme with a Finance Bill planned to be introduced as soon as possible after the summer recess.

R3 believes that the Making Tax Digital (MTD) programme is, overall, a positive step and one which should aid its members as well as HMRC. A move to digital tax records will create an upfront cost to each insolvency practitioner, for example in establishing IT systems and training of staff. However, once established MTD should allow for future efficiencies in tax reporting for insolvency practitioners and hopefully expedite access to information held by HMRC.

Importantly, without a number of special arrangements that take into account the insolvency process, there is a risk that MTD will only increase the administrative burden for insolvency practitioners and potentially reduce the amounts returned to HMRC as a creditor in insolvency cases.

Concerns expressed by the insolvency and restructuring profession

HMRC’s engagement with R3 as part of the ongoing MTD design process has been welcome, as it is important that HMRC understands the various issues at the design stage so that bespoke solutions can be incorporated into the build process, rather than trying to alter the system at a later stage. R3 is keen to ensure that the MTD process is a success, but has a number of technical concerns regarding the policy. There are two issues in particular that we would like to see addressed before the full roll-out of the policy:

  1. The current tax regime does not fully and accurately account for insolvency processes:

The current system relies on HMRC staff using workarounds rather than systematic solutions to the problems and peculiarities that can arise in insolvency cases. The new digital system will not be able to address these issues unless the existing system is first able to systematically take into account these problems.

R3 is currently working to formalise these workarounds with HMRC to ensure the new system is able to appropriately handle insolvency issues. We would like to see this dialogue continued and finalised, before the introduction of MTD is rolled-out further.

  1. Under the new system, office holders will not be recognised as taxable persons:

This will prevent insolvency practitioners, in both personal and corporate cases, from accessing documents and records, making it harder to account for tax owed to HMRC.  For example, in a bankruptcy case under MTD, only the person in bankruptcy would be considered as a taxable person, meaning that the office holder – in many cases an insolvency practitioner who is responsible for looking after the assets and selling them to make payments to creditors – would be unable to access the bankrupt’s digital tax record, thus preventing them from accounting for tax owed to HMRC.

Impact on HMRC

There are many advantages of the MTD programme for both HMRC and insolvency practitioners. However, in order for MTD to operate effectively the views and concerns of the insolvency and restructuring profession need to be taken into account as outlined above. If the policy is taken forward without this in mind, it will be harder for insolvency practitioners to be able to account for tax – making it harder to establish what is owed to HMRC and, crucially, making those payments to the Exchequer.


Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.