HMRC have recently published a paper setting out their policy for dealing with taxpayers who they see as unfairly reducing their tax liability by misusing company insolvency procedures.
In summary where HMRC believe there to have been tax avoidance, tax evasion or phoenixism involving a company, they have said they can make any director, any shadow director and any other person involved jointly and severally liable for the unpaid tax debt.
The legislation, which is now law through the Finance Bill 2019, sets out 5 conditions that can lead to the issue of a ‘joint liability notice’:
- The company is already in a formal insolvency process, or could be soon; and
- The company has been involved in either tax avoidance or evasion; and
- The person was responsible for the company’s conduct, enabled it, facilitated it, or benefited from it; and
- There is a tax liability arising from the avoidance or evasion; and
- There is a good possibility that tax will not be paid.
The legislation goes on to set out 3 conditions where HMRC may issue a joint liability notice where there are repeated insolvencies and non-payment of HMRC:
- 2 or more companies with which the person has been involved have gone into a formal insolvency process within a 5 year period; and
- The person is connected to another company which carries on the same or similar business of the insolvent company(ies); and
- When the companies went into formal insolvency, there was an unpaid HMRC debt.
For those who facilitate tax avoidance or evasion, there are 3 conditions:
- A facilitation penalty has been charged, or proceedings have begun to start one;
- The company is in a formal insolvency process, or is likely to go into one;
- There is a possibility the penalty will not be paid.
People can appeal against a notice, to the Tax Tribunal.
Right now I’ve not yet seen any of these yet, but it’s only a matter of time – HMRC expect to get up to recovering £0.2 billion a year soon from this. That’s a hefty figure, they will be workinmg hard to get up to this figure.