How HMRC votes on CVA and IVA proposals

HMRC’s Voluntary Arrangements Service decides how HMRC votes on company and individual voluntary arrangements. It supports a proposal only where it is realistic, the debtor’s tax returns are up to date, the offer is the best the debtor can make, future tax will be paid in full and on time, and HMRC’s preferential debt is paid in full ahead of ordinary creditors. Because HMRC is often a large creditor and the law protects its preferential status, its vote frequently decides the outcome.

Why does HMRC’s vote carry so much weight?

A company voluntary arrangement (CVA) or individual voluntary arrangement (IVA) is approved when three quarters or more by value of the creditors responding vote in favour. It fails if more than half of the total value of unconnected creditors (for a CVA) or creditors who are not associates of the debtor (for an IVA) vote against, under rule 15.34 of the Insolvency (England and Wales) Rules 2016. A business with large VAT and PAYE arrears often owes HMRC more than a quarter of its unsecured debt, so a vote against from HMRC is enough to defeat the proposal.

HMRC’s weight also comes from its ranking. For insolvencies with a relevant date on or after 1 December 2020, VAT and certain deductions the debtor made from other people’s pay or contract payments are secondary preferential debts. The deductions are PAYE income tax, employee National Insurance, Construction Industry Scheme deductions and student loan deductions, as specified in the Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020. Other taxes, such as Corporation Tax and employer National Insurance, remain unsecured. Our guide to HMRC as a secondary preferential creditor explains the ranking in detail.

Can a CVA or IVA cut HMRC’s preferential debt?

Not without HMRC’s agreement. Section 4(4) of the Insolvency Act 1986 for CVAs, and section 258(5) for IVAs, prevent creditors from approving any proposal or modification under which a preferential debt is paid other than in priority to non preferential debts, or under which one secondary preferential creditor is paid a smaller proportion than another, unless the preferential creditor concerned agrees. HMRC’s guidance says it expects all preferential debt to be cleared in full before anything is paid to non preferential unsecured creditors, and that its secondary preference should be shown in the estimated outcome statement. It will not support a proposal that does not do this.

What does HMRC require before it votes in favour?

HMRC’s guidance for insolvency practitioners says it considers proposals case by case and will only vote in favour where there is a realistic chance the proposal can be successfully implemented. The essential conditions are that the debtor:

• is honest about their finances and understands their obligations under section 6A (CVA) or section 262A (IVA) of the Insolvency Act 1986, which make it an offence to make false representations to obtain creditors’ approval
• states in the proposal that all future debts to HMRC will be paid in full and on time, reflected in the income and expenditure statement
• has up to date tax affairs, with all returns submitted, so the debt is known
• has made an optimised and achievable offer, which HMRC calls the best offer first time

HMRC also expects the insolvency practitioner to be able to confirm the true position on assets and liabilities, that asset and liability values are not materially different from the proposal, and that the proposal is likely to work. For a CVA it wants a detailed cash flow forecast covering at least the first 12 months, full reasons for past non payment of tax with an explanation of what has changed, and a clear timetable for contributions. HMRC compares the proposal with what it already knows and looks critically at projected income and expenditure. It does not review or advise on draft proposals.

HMRC’s general guidance adds that before deciding it will confirm with the proposer that whatever went wrong has been corrected, so that supporting the arrangement does not put future tax at risk. It looks positively at proposals where circumstances are explained fully and honestly and the offer is achievable.

What makes HMRC vote against?

HMRC lists the factors that make a vote against likely, including:

• failure to meet the obligations of a previous voluntary arrangement
• involvement of the debtor, or a company’s directors, in tax avoidance schemes
• paying other creditors while withholding sums due to the Crown
• evading statutory liabilities, or past or current links with contrived insolvency, including phoenixism
• terms that try to remove HMRC’s right of set off against HMRC debts
• inability to pay ongoing tax while keeping up the arrangement
• requiring the sale of HMRC’s debt, or not paying cash dividends
• unusual or hidden supervisor costs
• for CVAs, terms allowing early completion without creditor consent, and proposals under which an organisation’s members must be paid in full while other unsecured creditors are compromised

Full and honest financial disclosure is a precondition: HMRC says it will not support a proposal without it.

How is a proposal sent to HMRC?

Proposals should go straight to the Voluntary Arrangements Service by email: CVA proposals to eisc.cva@hmrc.gov.uk, quoting the company registration number, VAT registration number and PAYE reference; IVA proposals to vas@hmrc.gov.uk, quoting the debtor’s National Insurance number, Self Assessment reference and any PAYE or VAT references. The email subject should include the date of the decision procedure. HMRC warns that it may not be able to use online portals, and that if further information it asks for is not provided it may vote to reject, without any promise to revisit the decision if the information arrives later. For individuals, HMRC expects the practitioner to have considered alternatives such as bankruptcy or a debt relief order first; see IVA or bankruptcy.

What happens once an arrangement is approved?

An approved CVA binds every creditor who was entitled to vote, or would have been if they had had notice, under section 5(2) of the Insolvency Act 1986, so HMRC is bound even if it voted against. A creditor that considers the arrangement unfairly prejudicial, or that there was a material irregularity, can apply to court under section 6, generally within 28 days of the outcome being reported to the court. HMRC’s guidance says that, for all kinds of voluntary arrangement, no creditor can press for payment of debt included in the arrangement until it is agreed, and that if the arrangement fails, creditors regain the right to pursue the outstanding debt. Keeping new tax paid on time is therefore central, because it is the condition HMRC set when it voted.

In Scotland an individual can instead sign a trust deed, making regular payments to an insolvency practitioner for creditors. Companies across the UK can also use a moratorium, during which HMRC says it stops recovery for 20 business days, extendable to 40 or by the court up to a year.

How might HMRC assess a CVA?

Illustration only. A restaurant company owes £120,000 of unsecured debt in total, including £40,000 of VAT and PAYE (secondary preferential) and £10,000 of Corporation Tax. The proposal pays 30p in the pound to all unsecured creditors over five years. HMRC would vote against: its £40,000 preferential debt must be paid in full ahead of ordinary creditors, and HMRC holds more than a quarter of the votes by value. A revised proposal pays the £40,000 in full in the first two years, pays ordinary creditors 25p, includes a 12 month cash flow showing current VAT and PAYE being met, and explains that the losses came from a closed second site. HMRC’s conditions are now met, subject to its own checks on the figures.

What mistakes do proposers make?

• Filing the proposal before the tax returns. Outstanding returns mean HMRC cannot see what is owed.
• Treating HMRC as an ordinary unsecured creditor. Its VAT and PAYE arrears must be paid in full first.
• Leaving room to improve the offer. HMRC expects the best offer first time.
• Ignoring ongoing tax in the cash flow. Future liabilities have to be met alongside contributions.
• Sending the proposal to the wrong place or too late. Use the Voluntary Arrangements Service email and put the decision date in the subject line.

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Related Accountapedia entries

• IVA or bankruptcy: which is better
• When HMRC can share your tax information
• Registering as an employer with HMRC
• What happens after you appeal to HMRC
• Does HMRC charge interest on penalties

Sources

• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: Act 2020 c. 14, section 98
• legislation.gov.uk: Act 1986 c. 45, schedule 6
• legislation.gov.uk: SI 2020/983
• legislation.gov.uk: Act 1986 c. 45, section 4
• legislation.gov.uk: Act 1986 c. 45, section 258
• GOV.UK: Company voluntary arrangements service supporting businesses
• legislation.gov.uk: Act 1986 c. 45, section 6A
• GOV.UK: Individual voluntary arrangements supporting individuals
• GOV.UK: What will happen if you do not pay your tax bill

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.