HMRC Joint Liability Powers Reshaping Insolvencies

It may seem like a long time since Schedule 13 of the Finance Act 2020 was introduced, granting HMRC the authority to issue joint and several liability notices against individuals for a company’s unpaid taxes related to tax avoidance, evasion, or repeated insolvency. You’re not alone in feeling this way. Although hailed as a “game changer” at the time—effectively piercing the corporate veil for directors—surprisingly, many insolvency practitioners and tax advisors either remain in the dark about this power or have yet to see it enforced.

For some time, HMRC was cautious in using its powers, seemingly testing their legal validity. However, that caution seems to have faded. At Tax Accountant, we are observing a steady increase in the number of notices being issued—ranging from penalties for directors to significant company debts pursued against individuals following insolvency.

With the Autumn Budget promising enhanced collaboration among HMRC, Companies House, and the Insolvency Service to tackle “phoenixism” (the practice of using repeated insolvencies to avoid tax), we fully anticipate a substantial rise in the number of issued notices.

Why Is HMRC Turning Up the Heat?

Look no further than the Insolvency Service statistics:

• 2022: 22,129 registered company insolvencies in England and Wales
• 2023: 25,163 total insolvencies—an average increase of 250 a month
• 2024 (up to October): 20,052 insolvencies already

Their latest commentary notes that monthly averages in 2024 match 2023—the highest annual figure since 1993—highlighting a worrying upward trend. The result? HMRC is getting aggressive, using these joint liability notices as a deterrent against those who try to sidestep hefty tax bills via insolvency.

How HMRC Issues These Notices

When HMRC suspects a company or LLP is insolvent—or on the brink—and a tax liability risks going unpaid, it can issue a notice making one or more individuals personally liable for the relevant tax. Their specialist Insolvency Teams especially scrutinize cases involving substantial debts where HMRC is a major creditor.

Only an authorised officer at HMRC can officially approve issuing these notices. After approval, a Personal Liability Notice (PLN) typically follows, stating: “We are now making you personally liable to pay. This is because we believe the company is either insolvent or likely to become insolvent.”

Recipients have 30 days from the date of the letter (not receipt) to appeal. Without an appeal, HMRC can pursue any of the named individuals (especially those with tangible assets) to satisfy the debt.

Understanding the Legislation

Tax Avoidance and Evasion Cases

Schedule 13 FA 2020 lays out five conditions that must be met to trigger liability:

1. Condition A – The company used tax avoidance arrangements or engaged in tax-evasive conduct.
2. Condition B – The company is insolvent or likely heading there.
3. Condition C – The individual was responsible for tax avoidance/evasion while acting as a director, shadow director, or participator.
4. Condition D – There is (or will be) a tax liability tied to that avoidance/evasion.
5. Condition E – There’s a real possibility that some or all of the tax won’t be paid.

Repeated Insolvency and Non-Payment Cases

Here, four conditions apply:

1. Condition A – The individual had a relevant connection to at least two “old companies” in the last five years.
2. Condition B – A “new company” is carrying on a similar trade to at least two old companies.
3. Condition C – The individual also had a relevant connection to the new company within the same five-year period.
4. Condition D—At notice time, the old companies had tax liabilities exceeding £10,000, which is over 50% of their total unsecured liabilities.

Important: These rules cover periods ending on or after 22 July 2020.

Top Tips for Protecting Yourself

Having already helped clients steer through these notices, here’s what we suggest:

1. Challenge Early
2. If your company is under enquiry—whether it’s a discovery assessment, Closure Notice, or penalty assessment—appeal promptly to keep HMRC’s claims in check.
3. Check the Date
4. If the liability arose before 22 July 2020, this legislation does not apply.
5. Appeal Immediately
6. If a PLN arrives, file your appeal and postponement application within 30 days from the date of the letter (not when you received it).
7. Insolvency Advice
8. When talking to an insolvency practitioner, flag Schedule 13 FA 2020, especially if you’ve had a previous link to another insolvent company.

The Bottom Line: With insolvencies on the rise, especially in vulnerable sectors like hospitality, expect more Personal Liability Notices from HMRC. The implications of these notices for you and your assets are serious. Inaction could lead to significant financial repercussions. It’s crucial to handle them carefully and strategically.

If you need help with PLNs, a tax investigation, or any other tax or VAT dispute with HMRC, don’t hesitate to reach out for a no-obligation consultation at 0800 135 7323 or email info@taxaccountant.co.uk. Remember, professional advice is your best defence in navigating this expanding HMRC crackdown.