HMRC granted further powers to lift the corporate veil

Alongside the reintroduction of preferential status for elements of unpaid tax from 1 December 2020, HMRC have also been given the power to issue notices of “Joint and several liability of company directors” in relation to accounting periods ending on or after 22 July 2020. Such a notice will make directors personally liable for tax debts of a company in situations where they are suspected of abusing the insolvency framework to avoid paying corporate taxes.

The legislation was introduced as another tool to deter company “phoenixism” alongside existing limitations on the re-use of company names and substantial disposals to connected persons.

HMRC may give a joint and several liability notice to an individual if they are satisfied that all 4 of the conditions A to D have been met. A summary of the conditions is:

1. in the last 5 years the individual had a relevant connection to at least 2 ‘old companies’ that were subject to an insolvency procedure and had a tax liability
2. a ‘new company’ is or has been carrying on a similar trade to any 2 of the old companies
3. the individual has a relevant connection to the ‘new company’
4. the relevant old companies have a tax liability of more than £10,000 that is more than 50% of the total amount of those companies’ liabilities to their unsecured creditors

A notice must be given within two years of the day on which HMRC first became aware that the conditions for giving a notice have been met. Note that ‘insolvency procedure’ includes a solvent liquidation if tax debts remain unpaid for 12 months after the date of liquidation.

It will be interesting to observe in practice the volume of notices and the effect this legislation will have on companies trading to the detriment of the crown.

About the authors:

Henry Page is a Corporate Restructuring Partner. He is based at the firm’s London office and is a qualified Chartered Certified Accountant and licensed insolvency practitioner. He has experience of all types of restructuring work, extending to both companies and LLPs, whether domestic or overseas.

Louis Byrne is a qualified Insolvency Practitioner, with experience in working with distressed companies and individuals and dealing with complex solvent restructuring matters.

Are you affected by this legislation?

If you would like some help and advice on this subject, please don’t hesitate to get in touch with Louis or Henry or a member of Mercer & Hole’s Corporate Restructuring Team.