On 5 February 2020, the House of Commons published a briefing paper on the proposal to empower HMRC to issue joint and several liability notices (JSL notices) to directors when certain conditions relating to tax avoidance and insolvency are met. This power would also extend to companies which have repeatedly been involved with insolvency or non-payment of tax.
The proposal is said to be aimed at taxpayers who deliberately abuse the insolvency regime in order to avoid, or evade, their tax liabilities through so-called phoenixism. This is the practice of repeatedly accumulating tax debts without payment by running them through a succession of corporate vehicles where each one will become insolvent and transfer its business, but not its debts, to a new entity.
As currently drafted, where a JSL notice is issued, the individual and company concerned are made jointly and severally liable for the tax debt, unless the company no longer exists, in which case the individual is wholly responsible for the debt.
The following five conditions must be met before HMRC may issue a JSL notice in cases of tax avoidance or evasion:
- the company has engaged in tax avoidance or evasion
- the company is subject to an insolvency procedure, or there is a serious risk that it will be
- the person to whom a notice is issued was responsible for, or complicit in, the avoidance or evasion, or received a benefit knowing it came from the avoidance or evasion • that there is, or is likely to be, a tax liability arising from the avoidance or evasion, and
- there is a serious possibility that some, or all, of the tax liability will not be paid.
The draft legislation also sets out that the following three conditions must be met before HMRC may issue a JSL notice in a case of repeated insolvency:
- that during the five years prior to the notice, the person has had a pertinent connection to at least two companies which have become subject to an insolvency procedure and which had outstanding amounts due to HMRC
- that the person has a relevant connection to another, newer, company during that five-year period, which carries on a trade similar to at least two of the old companies, and
- at least one of the old companies has an amount outstanding due to HMRC when the notice is issued (and that amount is at least £10,000 and represents at least 50 per cent of the total amount due to creditors).
The briefing paper can be viewed here.