HMRC have for some time been able to pursue individual directors for certain tax liabilities of a company, for instance – use of Reg 72 to transfer a company’s employment tax liabilities to an individual director where it can be shown that there was collusion to avoid deduction of PAYE and the transfer of penalties levied for the submission of inaccurate documents to HMRC from the company to the directors, where deliberate behaviour can be shown. However, presently, there is no mechanism to transfer corporation tax liabilities to the individual director regardless of whether the director was instrumental in these taxes being unpaid.
Following Royal Assent of the Finance Bill 2019/20, where there is a risk that a company may deliberately enter insolvency and tax is at risk as a result, the directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly or severally liable for company tax liabilities. The measure will apply regardless of company size.
The changes are designed to target individuals who deliberately abuse the insolvency rules to protect the gains of tax avoidance or evasion or sidestep tax debts by forcing viable businesses into insolvency only to continue trading through a new entity in a process known as phoenixism.
HMRC are likely to consider use of these powers in any situation where there is a risk that there has been deliberate actions by directors, but this will not always be the case.