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Glossary

Tax terminology can be very confusing. We have provided this glossary to explain the terms and expressions you MAY come across.

Administration

Is a procedure which places a company under the control of an insolvency practitioner (or IP) and the protection of the Court. Administration is intended to fulfil one of the following objectives; rescuing the company as a going concern, or achieving a better result for the creditors as a whole than would be likely if the company were wound up without first being in administration. While a company is in administration creditors are prevented from taking any legal recovery action against it, except with the permission of the court. An administrator may be appointed either by an order of the Court, on application by either, the company, its directors, one or more creditors, or, if it is in liquidation, its liquidator. Without a court order an administrator may be appointed, by direct appointment by the company, its directors or a creditor who holds comprehensive security of a type which qualifies him to make such an appointment.

Bailiff

An officer of the court who is employed to execute writs and processes with the intention of recovering payment or assets to settle an outstanding liability.

Company Voluntary Arrangement (CVA)

A procedure which enables an insolvent company to propose a repayment plan to its creditors. Under this plan, creditors agree to accept a lesser sum of money in full and final settlement of debts due to them by the company. An IP supervises this procedure.

Compulsory Liquidation

Also referred to as 'compulsory winding-up'. A liquidation procedure which is initiated by either a creditor, the company or a shareholder making a petition to the court, normally for unpaid debts which results in the court making a winding up order.

Corporation Tax

Refers to a tax levied by various jurisdictions on the profits made by companies or associations.

County Court Judgments (CCJs)

These are legal decisions handed down by County Courts. Judgments for monetary sums are entered on the Register of County Court Judgments, which is checked by credit reference agencies to assess the credit-worthiness of individuals.

Creditors Voluntary Liquidation

The most common liquidation procedure whereby shareholders, usually at the directors' request, pass a resolution to place a company into liquidation because it is insolvent. The process is driven by the directors, unlike the compulsory liquidation, which is normally driven by a creditor. An independent IP is appointed to act as liquidator by the directors and shareholders and creditors are invited to a meeting to either agree the appointment or nominate an alternate liquidator.

Distraint

A landlord's action for recovering arrears in rent by taking possession of and selling the tenants personal property. A local authority may also instigate such an action to recovery rates and HM Revenue and Customs may do so for unpaid taxes. Trading creditors may also instruct a bailiff but need to comply with legal processes before they can commence such an action.

Her Majesty's Revenue and Customs (HMRC)

HMRC is a non-ministerial department of the British Government primarily responsible for the collection of taxes and the payment of some forms of state support.

Insolvency Act 1986 Section 123

(1) A company is deemed unable to pay debts-

  • (a) if a creditor to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving at the company\'s registered office, a written demand requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or
  • (b)the execution or other process issued on a judgement, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or
  • (c) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.

(2) A Company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company\'s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

 

Insolvency Practitioner (IP)

An advisor, regulated by a recognised professional body, who is authorised to act as an administrator, administrative receiver, liquidator or supervisor, of a company, or trustee in bankruptcy or supervisor of an individuals affairs.

Judgement debt

A judgement is the legal recognition of a debt by a Court.

 

 

 

 

PAYE (Pay-As-You-Earn)

PAYE is an amount collected by employers on behalf of the government from employees. This is, in effect, a provisional payment of tax on the employee's income. The amount withheld is determined partly by the employee's expected tax allowances, exemptions and relief's, and partly by tax tables that determine the amount of tax to be deducted for the salary or wage paid to the employee.

Penalty interest

Payable when money is due, but is not paid by the due date. For instance the non-payment of taxes or late payment of the balance of a purchase price at settlement will usually give rise to an obligation to pay penalty interest.

Self Assessment

Completing a tax return and record keeping if you're self-employed or in a partnership.

Statutory Demand

A formal notice requiring payment of a debt if within 21 days, exceeding £750 default of which bankruptcy or liquidation proceedings may be commenced.

Summons

A summons is a legal document issued by a Court (a judicial summons) for various purposes.

VAT (Value Added Tax)

VAT is a consumption tax levied on goods and services. The standard rate of VAT is 17.5%. (currently reduced rate 15%) Certain goods and services are zero rates as exempt from VAT.

VAT Default Surcharge

You must file your VAT return and pay any VAT by the due date. If HMRC receives your VAT return or VAT payment after the due date, you are 'in default' and may have to pay a default surcharge in addition to the VAT that you owe.

The first time you default, you will be sent a warning known as a 'Surcharge Liability Notice'. This tells you that if you pay late ('default') again during the following 12 months you may be charged a surcharge.

If you file or pay late again during your surcharge period you may have to pay a 'default surcharge'. This is a percentage of your unpaid VAT.

  • Your next surcharge will be 2 per cent of your unpaid VAT.
  • Your third surcharge will be 5 per cent of your unpaid VAT
  • Your fourth surcharge will be at 10 per cent of unpaid VAT.
  • Your fifth surcharge will be at 15 per cent of unpaid VAT.

Walking possession

An agreement that means the goods that have been seized now legally belong to the bailiff and can be removed at any time. However, a period of time will be provided to enable payment to be made to settle the outstanding debt and to avoid the uplift of the assets subject to the walking possession.

Winding-up order

An order made by a Court for a company to be placed in compulsory liquidation.

Winding-up petition

A petition presented to the Court on behalf of a creditor, usually by a solicitor to grant a winding up order over a debtor of the creditor's company.

Liquidation

Often referred to as 'winding up' and it is the most common corporate insolvency procedure. A liquidator is appointed to realise the company's assets and distribute the proceeds in a prescribed order of priority. A liquidation signals the cessation of a company and its eventual removal from the companies register. It can occur following an administrative receivership or administration.

Official Receiver

An officer of the Insolvency Service responsible for handling bankruptcies and compulsory liquidations in the initial stages immediately after a winding up. This person is head of the regional offices which have responsibility for bankruptcies and compulsory liquidations.