Tax

Taxation of companies subject to insolvency procedures

There are relatively few specific rules governing the taxation of companies that are subject to insolvency procedures. The basis approach to the taxation of companies in an insolvency process is that the normal tax rules applicable to the particular situation that has arisen should be applied.

One of the consequences of this is that different insolvency procedures often give rise to different tax treatments and effects, and so the choice of the procedure adopted is not strictly tax-neutral.

The tax issues that can arise in relation to a company in financial difficulties are many, varied and frequently complex.

One of the main direct effects of entry into one of the formal insolvency procedures (ie liquidation (of either kind) and administration) is on the corporation tax accounting periods of the company concerned.

One of the most important consequences of liquidation and administration and their impact on a company’s accounting periods is on the company’s ability to use its tax losses, particularly the ability to set their trading losses against any chargeable gains that may be realised during the insolvency ...