There are a number of practical measures that companies, suppliers and individuals affected by the Toys R Us and Maplin collapse can take to mitigate their losses.
Helena Kanczula, corporate tax director at Blick Rothenberg, said, 'Maplin and Toys R Us are the latest retailers that have run into financial difficulties resulting from the current malaise on the high street.
'For creditors that are owed amounts by businesses that are in active talks, that have gone into administration or are in the process of being liquidated, there are some practical steps that can be taken in order to mitigate losses.'
- For VAT bad debt relief, the debt must have remained unpaid for a period of six months from the date from when the invoice was due to be paid. It may therefore be a significant amount of time before affected companies would get a refund of VAT. Customers of businesses that have gone into administration should review their payment terms and plan accordingly. HMRC may also be in a position to agree instalment arrangements for businesses that are unable to pay tax on time.
- Any potential bad debts from customers in financial difficulty should be provided against and corporation tax/income tax relief can be claimed on the deduction, hence reducing the tax liability.
- Creditors of businesses that have gone into liquidation should make a claim to the liquidators as an unsecured creditor.
- There is an order of priority regarding who ranks above who when a company goes into liquidation and trade creditors would be below secured creditors such as banks and the company’s employees. There may therefore be limited funds available to distribute to suppliers.
- HM Revenue & Customs (“HMRC”) may also be in a position to agree instalment arrangements for businesses that are unable to pay tax on time. In the case of the folding of other high profile businesses such as Carillion, HMRC have offered to provide practical advice and guidance to businesses affected.
Commenting on what shareholders could do, Helena said, ‘For shareholders in companies that have been liquidated, this is treated as a disposal event and shareholders should be aware that a capital loss may therefore crystallise. This can be claimed up to four years after the end of the tax year and offset against other gains in excess of the annual exempt amount.’
Paul Haywood-Schiefer, assistant manager at the Blick Rothenberg, added, ‘For any employees of these companies, should their employers make any non-contractual redundancy payments (i.e. other than payments for wages owed, bonus payments due, payments in lieu of notice or holiday pay owed which would all be contractual), these will be tax free up to a £30,000 limit.’
For more information, please comtact Helena Kanczula
or Paul Haywood-Schiefer