What is the impact of new HMRC legislation on directors of an insolvent company: joint and several liability notice

joint and several liability notice

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In our experience, few people set out to run an insolvent business and, whilst HMRC recognises that the majority of insolvencies are for genuine financial circumstances, they are not turning a blind eye to those individuals who are looking to set up a phoenix company to rise from the flames of an insolvent estate merely for the purpose of avoiding the payment of historical tax liabilities by placing yet another of their companies into an insolvency procedure. So, what is the impact of new HMRC legislation on directors of an insolvent company: joint and several liability notice, we take a look.

For those directors who do not pay proper regard for their tax affairs, the new legislation has been introduced by HMRC to crack down on individuals who use insolvency to sidestep their tax liabilities by metaphorically “dumping their old company” into an insolvency procedure whilst avoiding the payment of debts due to crown departments (and other innocent creditors) whilst setting up a fresh new company (a phoenix) to rise from the flames of the dump with no debt, yet doing exactly the same or similar business to the now-defunct business left smouldering in the ashes.  

The new legislation is not there to catch out genuine small business startups and entrepreneurs and there are minimum thresholds before an authorised officer of HMRC may give a joint and several liability notice. 

A joint and several liability notice must be given within 2 years of the day on which HMRC first became aware that the conditions for giving a notice have been met. The notice will:

  • state the company to which the notice relates
  • set out the reasons why the authorised officer considers that each condition has been met
  • state any amounts for which the individual is liable
  • explain what the giving of the notice means to the individual
  • offer a review by HMRC and explain how this works
  • explain the individual’s right of appeal

Where HMRC gives a joint and several liability notice to an individual for a repeated insolvency and non-payment case, that individual is jointly and severally liable with the new company (and with any other individual who is given a notice) for both of the following:

  • any unpaid tax liability of the new company which is unpaid on the day the joint and several liability notice is given
  • any tax liability of the new company that arises during the period of 5 years beginning with the date the joint and several liability notice is given and while the notice continues to have effect

Also, if there is still any unpaid liability of one or both of the relevant old companies, the individual is also jointly and severally liable with that company (and with any other individual who is given such a notice) for that liability.

HMRC will not give notices under the ‘repeated insolvency’ part of the legislation to ‘connected persons’ where they are satisfied that both of the following apply. The person:

  • acted in good faith
  • had no material influence over the company’s affairs

One common denominator that stands out today more than any other and has already driven countless businesses to the wall, is the impact that COVID-19 has had on you personally and the hundreds of thousands of businesses up and down the length and breadth of the country.  

If you are a director/individual with a business facing financial difficulties then please do not hesitate in contacting My Insolvency for free advice from a qualified and independent professional adviser today.

From our experience, it often seems easier for a director not to take a decision for fear of getting it wrong. For just the cost of a telephone call, you may obtain free advice today to explore and understand how My Insolvency can, as professionally qualified advisors, help you as directors in taking the next step for you and the future of your business.  

As turnaround specialists, My Insolvency aims to rescue companies that are on the verge of insolvency. Our involvement is tailored for you and your business and we provide an important service in saving many failing companies. Call us now to see how we can help you and your business in these difficult times.

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