The UK government is currently considering feedback on proposals to make directors liable for tax debts when a company becomes insolvent and a response setting out the governments intentions is expected in the autumn.
HMRC is very concerned about the use of 'phoenixism' where some tax payers who own or manage companies actively engage in evasion or repeated non payment of tax and use the insolvency process so that the company avoids paying the tax. The business may then continue to be operated through another company.
The government is proposing that HMRC's power to transfer liability for tax debts to company directors and officers could be extended to transfer liability to tax debts "to the persons responsible" for the avoidance, evasion or repeated non payment of tax when there is a risk the funds will be lost to insolvency.
HMRC already possesses considerable powers in this area from Accelerated Payment notices to recovering the unpaid PAYE on directors’ salaries prior to a company’s liquidation from the individual directors.
The government has also proposed making these people jointly and severally liable for the company's tax debts. This has raised some concern given it would compromise the status of limited liability companies and could pierce the 'corporate veil'; which refers to the principle that shareholders are not liable for debts of a company.
Altion Law believes that although HMRC does have a number of tools to address Phoenixism, these are spread across a number of different areas of Tax and Financial legislation making these difficult to locate and that reviewing these powers and providing guidance around usage would assist HMRC with this problem. Altion Law also deals with a number of instances where the insolvency is a genuine commercial difficulties and has concerns that HMRC could use new powers to impact genuine entrepreneurs.
Whilst HMRC have stated that’ Companies who are in genuine difficulty and have not engaged in tax avoidance, tax evasion or repeated non-payment of taxes should be absolutely clear that their rights will continue to be protected’, Altion Law has dealt with Clients who have been accused of deliberately avoiding paying tax by HMRC and issued with Winding up petitions before having these petitions withdrawn.
>If a Winding Up Petition is threatened or brought against your business, you are strongly advised to seek immediate legal advice. Most winding up petitions are brought by HMRC against businesses who cannot pay their PAYE, VAT, Corporation Tax and Wrongdoing Penalties. This can be a frightening prospect for any business. Our advice is don’t give up. At Altion Law we are experienced negotiators who will fight your corner and take the stress out of your situation. Our Litigation lawyers have a proven track record of negotiating mutually agreeable deals with creditors, including HMRC.
Visit our Insolvency page for more information or for specialist legal advice and support from our experienced insolvency solicitor, please contact us on 0908 414990 or by using the form below.