It feels like H M Revenue & Customs (“HMRC”) are getting more powers and the protection of Limited Liability Trading is being eroded – it feels like it because it is the case!
From 22nd July 2020, S.100 of The Finance Act 2020 (Joint and several liability of company directors etc) provides for a person to be jointly and severally liable for amounts payable to HMRC by companies and LLPs in certain circumstances involving insolvency or potential insolvency. This includes directors and shadow directors, managers and shareholders.
The new laws have been drafted to be intentionally wide to act as a deterrent – how they will be used is yet to be seen.
HMRC can now issue a Joint Liability Notice to make an individual personally liable with the company for outstanding tax liabilities.
Although there are various conditions that have to be applicable, in general it can apply in three main scenarios:
From 22nd July 2020, S.100 of The Finance Act 2020 (Joint and several liability of company directors etc) provides for a person to be jointly and severally liable for amounts payable to HMRC by companies and LLPs in certain circumstances involving insolvency or potential insolvency. This includes directors and shadow directors, managers and shareholders.
The new laws have been drafted to be intentionally wide to act as a deterrent – how they will be used is yet to be seen.
HMRC can now issue a Joint Liability Notice to make an individual personally liable with the company for outstanding tax liabilities.
Although there are various conditions that have to be applicable, in general it can apply in three main scenarios:
- Tax avoidance and tax evasion cases;
- Repeated insolvency and non-payment cases; and
- Cases involving penalties for facilitating avoidance or evasion.
And where:
- The company is subject to an insolvency procedure, or there is a serious risk that it will be;
- The person was responsible for the company’s conduct, enabled or facilitated it, or benefited from it;
- There is likely to be a tax liability arising from the avoidance or evasion; and
- There is a serious possibility some or all of that liability will not be paid.
In cases related to “repeated insolvency and non-payment”, the following conditions need to also apply:
- Two or more companies to which the person is connected have become insolvent in a period of five years immediately prior to the issue of the notice (and had an unpaid tax liability or failed to submit a relevant return);
- Another company (“new company”) carries on the business of the insolvent companies;
- The individual has a relevant connection with the new company in the five year period; and
- One of the failures had HMRC liabilities over £10,000 and which was greater than 50% of the unsecured creditors (or where the Company has not submitted returns in order for the debt to be quantified)
In cases related to the “facilitation of tax avoidance or evasion”, the conditions are:
- A relevant penalty has been imposed on a company by HMRC, or Tribunal proceedings to impose one have begun;
- The company is subject to an insolvency procedure, or there is a serious risk that it will be;
- There is a serious possibility some or all of the penalty will not be paid; and
- The individual issued with the notice was either:
- Responsible for (or helped plan or implement) the avoidance or evasion;
- Received a benefit knowing (or could reasonably be expected to have known) it arose as a result of the avoidance or evasion; and
- A tax liability is likely to be due as a result of the avoidance or evasion.
As HMRC will decide which cases are applicable, there is a risk of inconsistency in approach – there is also only limited scope for an individual to appeal.
NEW: HMRC Powers to Make Directors (and others) Personally Liable