HMRC owed £2.38m after law firm collapse

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Peninsula Team, Peninsula Team

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Conveyancing law firm Alexander Grace Law went bust in June following a winding up petition from HMRC due to a £2.38m unpaid tax bill and further debts of £4.3m

Before it went into administration, the Lancashire based property law firm had accumulated a ‘significant’ debt of £2,387,258 with HMRC and failed to negotiate a time to pay agreement with tax officials, Begbies Traynor confirmed in the latest statement of administrator’s proposal.

There were also a substantial amount of outstanding directors loans, amounting to £583,665, which the administrators are investigating.

The outstanding debt for employment taxes totalled £1,825,804. This was broken down into £589,122 for PAYE, employee National Insurance contributions (NICs) and student loan deductions, and a VAT bill for £1,236,682. HMRC is a secondary preferential creditor for this element of the tax debt.

But the tax bill does not stop there as Begbies Traynor confirmed that there was a second tranche of unsecured debt due to HMRC. This amounted to a further £561,454 comprised of employer NICs, apprenticeship levy, interest, accrued interest, VAT surcharges and penalties, corporation tax, and a PAYE late payment penalty.

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Begbies Traynor indicated that it is unlikely that HMRC will be paid, stating that ‘it is presently uncertain whether there will be sufficient funds to enable a dividend to be paid to HMRC as secondary preferential creditor. The likelihood of a dividend will depend upon the amounts realised from the company’s assets’.

There will be no funds to settle demands from unsecured creditors which will leave HMRC with an unpaid tax bill of £561,454 for this part of the tax debt.

Begbies Traynor also confirmed that there were no prospective buyers for the business and it could not be restructured as the financial position meant it was not a going concern.

‘We presently consider that it is not reasonably practicable to rescue the company as a going concern. This is because there was no real prospect of a restructure or a company voluntary arrangement due to the company’s inability to raise the urgent funding required to address the insurance and HMRC issue,’ Begbies Traynor said.

There are also director loans outstanding, estimated to be £583,665 but the insolvency team has been unable to verify how much money had been loaned to directors but warned that it would be reviewing liability under s455 corporation tax rules. Section 455 is used when a director of a company borrows money from their business and is unable to return the full amount during a certain time period.

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