As of 22 July 2020 the Finance Act 2020, Schedule 13 has empowered HMRC to transfer company liability to the directors. In doing this HMRC can now hold the directors accountable for the tax debt of a company which has become insolvent (liquidation) or will become insolvent.
In cases where directors are suspected of not paying HMRC the tax owed either by “alleged” tax evasion or tax avoidance, the personal liability notices are a way for HMRC to secure tax payments usually related to PAYE, NIC’s or VAT.
HMRC are more frequently giving joint and several liability notices to directors and particular other individuals, of course, considered to be connected to a company, followed by Notice of Requirement (NOR) for a security bond to be paid. This means that the personal liability of the company can be made on a joint and several bases, potentially making and holding multiple individuals liable for the debt.
Why the new legislation?
The purpose of the new law is to target those persons who repeatedly fail to meet tax liabilities through insolvency. Phoenixing or Phoenixism has been an ongoing concern for HMRC and creditors where a company is liquidated and then for the same business to re-appear from the ashes as a new entity. In doing this it avoids debts to creditors and HMRC.
The Joint and Several Liability Notice would apply in cases of repeated insolvency and non-payments, there need to be more than two companies (“old companies”) involved within the 5 year period from the date the notice is given (“the five-year period”). Of course there are other requirements under the legislation to target specific profiles such as financial liability level and debts.
While this has been in legislation for a couple of years now, the legislation applies to liabilities relating to any period that ends on or after 22 July 2020. As HMRC is time-limited in issuing a JSLN; in that it must be issued within two years from when HMRC became aware that conditions under the legislation are met, the matter now holds more significance than before.
Complexity for Directors
We have recently seen an increasing number of cases where HMRC have been issuing joint and several liability notices. We have found that for the individuals or directors, things become very complicated and stressful when, as a result of such allegations, HMRC then issue a NOR for securities. The notice for securities to, simply put, seize personal assets as well as that of the companies equalling the value of estimated tax liability – which is usually on the specific HMRC Officer’s best judgment (or lack of it if I may say so).
Our Experience
Here at Independent Tax and Forensic Services Ltd, in one of our most recent client “wins”, a poor judgement from HMRC and a subsequent allegation of deliberate behaviour on the part of the Directors without proof or an adequate enquiry was halted by us. HMRC subsequently, “re-considered” the liability and decided that the directors should not be held accountable.
Yes, the legislation aims to ensure that genuine insolvencies are not caught, with the added safeguard of an appeal right. However, in such circumstances, genuine and honest individuals are put under immense psychological and physical pressure without being given the opportunity to defend themselves as individuals.
We understand our clients and we know that even a slight misjudgement from HMRC can snowball into a big, unnecessary, avoidable headache.
Going forward, HMRC will be looking to pursue more directors on this basis. So, if you have any concerns about the prospect of being caught up by this legislation, contact us.
