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Adjusting liabilities following a CVA?

Company exiting CVA has tax liabilities that need clearing out.

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We have a limited company client that has just completed a five year CVA for substantial HMRC debts.

The accumulated liability balances from before the CVA have been held in the balance sheet and reduced each month by the monthly payments over the five-year term.  It has been agreed that the arrangement has now ceased and no further payment is due to HMRC.

I need to now correct the balance sheet and cancel the balance of the unpaid liabilities. Can someone give some guidance on the double-entry for this and any necessary disclosures, please?

Stupid question - tax position?

Thank you

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Accountants & Business Advisers
By Gladstone
20th Dec 2019 10:59

I've not personally experienced anything like this before but my thoughts on the topic are as follows:
Accounting - it is not clear as to how the HMRC liabilities were initially created ie due to VAT, Corp. Tax, PAYE etc. I would try to reverse the same ie Dr. BS-Liability A/c and Cr. PL item (eg Corp. Tax if this was a corp tax item). This can be viewed very similar to a bad debts recovery in which case you credit P&L and realise it as income as far as financial statements are concerned.
Tax treatment - debts written off in Company Voluntary Arrangements are not subject to tax (s144 Finance Act 1994) so this will be an adjustment to accounting profit for tax calculation.

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