Case Study: When Care really matters
For many of us completing tax returns by the due date can seem a daunting task. The problem can become exasperated when you are also a manager of a care home responsible for looking after the wellbeing of vulnerable people. I can understand why care is given priority and why conflicts arise such as should the owner spend hours if not days hunting for receipts or should they be looking to improve the lifestyle of people in their care?
This was the very real dilemma for the partners of a care home owner and operator who were introduced to me by their accountant. The client had operated the care home for a number of years as a partnership with a close family member.
The partnership had not filed tax returns for a number of years and had also accrued a debt with HMRC for not paying employees’ tax and NI contributions to HMRC. The owner and his wife were both hard working people who had built up equity in the care home and their family home.
HMRC had run out of patience with them and rather than pursuing the partnership issued bankruptcy petitions in the Court against the individual partners. The partners did not have the cash funds to pay the arrears and were both working hard to care for the residents but were fearful of what would happen if they were made bankrupt.
By selling either the care home or the family home they could generate sufficient funds to settle the debt due to HMRC but both of these options would take some time to complete not least because of CQC requirements and the owners’ desire to see the care home continue to trade and be a home for its residents under a new owner.
The owners attempted to settle their affairs by proposing Individual Voluntary Arrangements (“IVA”) as an alternative to bankruptcy. They offered 100 pence in the pound to all creditors but required 12 months to sell assets to generate the funds. HMRC rejected the proposal mainly due to the tax compliance record of the partners. HMRC take as much account of when returns are submitted as to the payment record and when they see incidents of a bad compliance record they are likely to vote against an IVA.
The partners were then left with the real prospect that they would be made bankrupt and that a civil servant called the Official Receiver (“OR”) would be appointed to administer the bankruptcies. The partners were very concerned and upset that the OR who they did not know and had never met before could decide to shut the care home and displace the residents. This would have been very upsetting and disturbing for the residents and their families as they would effectively lose their home and be rehoused in a new and alien setting. This could be particularly difficult for dementia patients.
The partners therefore decided to take my advice and place the care home partnership into Administration. By applying to the Court for an Administration process over the partnership, the care home business was protected from attack by creditors including HMRC. I was able to work with the partners to provide the financial controls required to run the business and deal with creditors’ claims and provide a platform for them to focus their energy on providing care to the residents.
Within six months a sale was completed at market value to a new care home operator who continued to operate the business. All creditors including HMRC were paid in full and the partners petitioned the Court for an order that the bankruptcies be annulled.
By working closely with the partners I was able to gain their trust and together we achieved an outcome that was in the best interests of the residents, the creditors, and the partners.
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