Crawfords Accountancy

Care Home – CVA

Mr and Mrs R and their two sons are in the business of running care homes.

Some are in a limited company R Ltd and some in the R Partnership.

The business has been successful and over the years has provided a very good livelihood for three families.

R’s accountants gave very good tax planning advice including some entirely proper advice whereby the profits rested in the company, rather than in the partnership where the rate of tax would be higher.

As a consequence of this, there arose a balance on the “inter-company” account of several hundreds of thousand pounds due from the partnership to the company.

Meanwhile, the combined business experienced a less good year resulting in weak cash flow and tax arrears began to accumulate. HMRC presented a winding up petition.

The directors came to David Kaye at Crawfords for advice.

David’s main objective was to save the business which was basically sound and, although it had had a challenging year, that was seen as an exception.

David recommended a CVA, which would allow the business to continue, whilst paying the tax arrears off over a period, together with current tax liabilities as they fell due. But this was dependent on the approval of HMRC who held all the cards for voting purposes. As expected HMRC rejected the CVA, not on commercial grounds but because of the inter-company account which, they believed, implied bad faith.

David negotiated with HMRC impressing the point that, in the absence of demonstrable bad faith, their duty was to do the best deal for the taxpayer. In this case, that meant accepting the CVA and getting in the arrears in full.

The CVA was then approved and (so far) everybody is happy—HMRC, the taxpayer and the three R families.