Insolvency: joint and several liability notices for directors

At the Autumn Budget 2017 and Spring Statement 2018, the Government announced that it would explore ways to tackle the small minority of taxpayers who deliberately abuse the insolvency regime in trying to avoid or evade their tax liabilities, including using phoenixism. In brief, “phoenixism” is the practice of carrying on the same business or trade successively through a series of limited liability entities where each becomes insolvent and transfers its business, but not its debts, to a new entity.

On 11 April 2018, HM Revenue & Customs (HMRC) published a discussion paper, “Tax Abuse and Insolvency,”^[1] in which it invited comments on two possible approaches:

• transferring liability for tax debts from companies to directors and other officers in certain circumstances; and
• joint and several liability for tax debts for those linked to the tax avoidance, evasion or repeated non-payment of taxes.

The consultation ran until 20 June 2018. In its “Summary of Responses”, published on 7 November 2018, the government confirmed it would legislate to allow HMRC to make directors, shadow directors and other persons involved in company tax avoidance, evasion or phoenixism jointly and severally liable for tax liabilities that arise from those activities where the company becomes insolvent. Draft legislation for the Finance Bill (expected in spring 2020), together with Explanatory Notes were published on 11 July 2019.

As currently drafted, the new provisions would empower HMRC to issue joint and several liability notices (“JSL notices”) to individuals when certain conditions relating to tax avoidance and insolvency are met, as well as to companies which have been involved with repeated insolvency or non-payment of tax. Where a JSL notice is given, the individual and the company are made jointly and severally liable for the debt, unless the company no longer exists, in which case the individual is wholly responsible for the debt. The aim is to ensure fairness across the tax system.

This Commons briefing paper provides an overview of the background to, and the main provisions of, this new regime. There is a separate Library briefing paper on “Phoenix trading and liability of directors” (CBP4083) which may also be of interest.