In the UK, when a company fails, you can start another business in the same industry. Directors can legitimately start a new company after a previous insolvency.
However, both HMRC and the Insolvency Service now closely scrutinise abusive phoenixism, where directors repeatedly leave behind unpaid debts and continue the same or a similar business through a new company. This is where companies are repeatedly allowed to become insolvent with unpaid liabilities, including tax debts, while the individuals involved continue the same or a similar business through a new company.
For directors facing financial difficulties, understanding the difference is important. In certain circumstances, HMRC can issue a joint and several liability notice, potentially making an individual personally responsible for relevant company tax liabilities.
What is a Phoenix Company?
The term “phoenix company” generally describes a new company that carries on the same or a similar business after another company has become insolvent. That does not, by itself, mean anyone has done anything wrong.
Businesses fail for genuine reasons. A major customer may be lost, costs may rise, trading conditions may change, or cash flow problems may become unmanageable.
HMRC is concerned that insolvency is repeatedly used to leave tax debts behind while essentially continuing the business through another company.
Why is This Particularly Relevant Now?
Government agencies are paying closer attention to abusive phoenixism.
In 2025/26, the Insolvency Service completed 148 investigations into abusive phoenixism, resulting in 87 director disqualifications, 18 company closures, and 5 convictions. Government funding to tackle director misconduct has also increased. The government has also allocated additional funding to tackle director misconduct, including abusive phoenixism.
For directors, the message is important:
A company entering insolvency does not end scrutiny of directors’ actions before insolvency.
When Can HMRC Make a Director Personally Liable for Company Tax Debts?
Joint and several liability rules let HMRC pursue directors personally in cases of repeated insolvency and non-payment of tax in the UK.
For cases involving repeated insolvency, HMRC must be satisfied that the relevant statutory conditions have been met before issuing a notice.
In broad terms, these include:
- Connection with at least two previous insolvent companies (within five years, the individual must have been connected to two companies that entered insolvency with unpaid tax).
- A new company carries on the same or a similar business (The new company trades in the same or a similar way as the previous insolvent companies).
- The director is also connected to the new company.
- The unpaid tax threshold is met (liabilities over £10,000 and more than 50% of total unsecured debts). Where the statutory conditions are satisfied, HMRC may issue a joint and several liability notice.
This means directors can lose the usual protection of a limited company and become personally liable for certain company tax debts.
Does One Failed Company Mean You Cannot Start Another?
No. This is an important distinction; the law targets repeated insolvency and non-payment, not every director whose business fails.
If your company fails for genuine reasons, you can usually become a director or start a new business without issue. However, if you start a new company in the same sector, or using a similar trading name, assets, or staff, additional legal considerations may apply. Take professional advice before proceeding.
What if Your Company Currently Owes HMRC?
This is perhaps the more useful question for a director reading this article.
If your company is struggling with growing PAYE, VAT, or Corporation Tax debts, don’t assume insolvency and starting again will erase those problems. HMRC can now pursue directors personally in some cases. Instead, carefully review the current business’s financial position.
Ask yourself:
- Is HMRC debt a temporary cash flow problem, or is it increasing?
- Can the company pay tax as it falls due?
- Are suppliers being paid late?
- Are you borrowing to meet normal costs?
- Are payment plans with HMRC being kept?
- Is a return to positive cash flow realistic?
- Is the business still viable?
The answers can help determine whether the company has a short-term cash flow problem or needs more substantial restructuring or insolvency advice.
Which Creditors Should You Pay First?
When cash is tight, directors face hard choices about which creditors to pay first. The supplier refusing to deliver gets paid. Creditors who threaten legal action may get paid first. HMRC or connected parties sometimes get delayed.
Be careful: payments to connected parties, or failing to pay HMRC, can be scrutinised in insolvency. When a company is insolvent or close to insolvency, these decisions require extra care and professional advice.
Director decisions and transactions can be reviewed and potentially challenged in a formal insolvency process. Taking advice while you still have choices available can therefore be considerably more useful than waiting until creditor action forces a decision.
Keep Records of The Decisions You Make
If your business is under financial pressure, robust record-keeping is essential to show your decisions were reasonable if HMRC or an insolvency practitioner reviews them later.
Make sure you:
- Maintain up-to-date financial records and cash flow forecasts
- Record significant board decisions and why they were made
- Retain correspondence with HMRC and other major creditors
- Keep all accounting records complete and accessible
- Regularly review whether continuing to trade remains appropriate
If you believe the company can trade through its difficulties, keep a record of the financial information supporting that decision and continue to review the position. Good records will not solve a financial problem, but they can show how and why you made decisions.
Don’t Wait Until You Decide on Liquidation to Get Advice
Many directors mistakenly wait until they’ve decided to close the company before seeking insolvency advice. By then, valuable options and solutions may no longer be available.
At My Insolvency, we review your situation and explain all available options. Depending on the circumstances, these could include:
- Improving cash flow or refinancing
- Negotiating an HMRC Time to Pay Arrangement
- Restructuring
- A Company Voluntary Arrangement (CVA)
- Administration
- An appropriate insolvency procedure where the business cannot realistically be rescued
The best solution depends on your company’s unique circumstances. Seeking advice does not mean liquidation is inevitable. It means understanding your financial position and making an informed choice for your future.
Concerned About HMRC Debt or Restarting After Company Failure?
If your business is accumulating tax debt, facing creditor pressure, or you’re considering closing and restarting, get professional advice before making any major decisions.
UK insolvency, director conduct, and personal liability rules are complex, especially with previous company failures.
My Insolvency provides independent advice to directors facing financial difficulty and helps you understand your options. It’s common to delay decisions out of worry, but acting sooner gives you more options.
Understanding your options now puts you in a stronger position for your next steps. Contact My Insolvency today to speak with a qualified adviser about your situation.
