Following on from our previous post regarding the return of the “Crown Preference”, a further introduction brought about by the Finance Act 2020 provides that directors, managers, shareholders, lenders and others can be made jointly and severally liable for the outstanding tax debts of insolvent (or potentially insolvent) companies and LLPs.  From 22 July 2020 HM Revenue & Customs (HMRC) can issue a joint liability notice to make an individual personally liable, with the company, for outstanding tax liabilities.

This clause and Schedule introduce a new regime giving HMRC a power to issue notices to make directors of companies, together with shadow directors and certain others connected to a company, jointly and severally liable for the company’s tax liabilities. HMRC can issue such notices only when the liability arises or is expected to arise from tax avoidance, tax evasion, repeated insolvency or a penalty for facilitating avoidance or evasion; and where the company begins insolvency proceedings, or is expected to do so, so that some or all of the tax liability will be lost to HMRC.

This clause is designed to change the behaviour of those who misuse company insolvency to retain the proceeds of their tax avoidance or evasion, or from the facilitation of avoidance or evasion by other persons. The new regime allows HMRC to issue notices to directors and others connected to a company, making them jointly and severally liable for any amounts that become due to HMRC as a result of the avoidance, evasion, facilitation of avoidance or evasion or repeated insolvencies. Safeguards are provided in the form of a right of appeal against a notice and notices can only be issued by an officer authorised for the purpose.

In summary, this new legislation is likely to have serious consequences for companies and their directors, as well as directors in their personal capacities, and the new provisions must be considered in the context of any restructuring or insolvency involving HMRC liabilities.

For further details contact Steven Wright in our Business Recovery section.

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