HMRC recognises that businesses will already have been in a formal VA when the crisis began and that the impact of the economic slump is likely to affect their ability to trade and meet the obligations of the existing arrangement.
HMRC will support an automatic minimum three-month break from contributions from customers impacted by Coronavirus. The tax authority has also said that any deferral of tax that the business is entitled to under the Government’s COVID-19 financial support package will not be deemed a breach of a VA.
The Government has retrospectively suspended restrictions around wrongful trading from the 1 March 2020 for three months.
Under English law, where a company continues to trade, even in the face of unavoidable insolvency, the company’s directors can be found personally liable for the losses suffered to creditors as a result, potentially leading to a court-ordered contribution to the assets of the insolvent company.
By suspending the rules, directors of struggling business who continue to operate, in the full knowledge that they face the prospect of insolvency, will not be penalised for doing what they can to keep their business operational.