Limited Liability Challenges by HMRC

The Finance Act 2020 introduced new rules making directors, shadow directors and certain others jointly and severally liable for a company's tax liabilities in insolvency situations, which has gone under the radar and not been widely published.

Since 22 July 2020, in certain circumstances involving insolvency or a potential insolvency, any director or shadow director of, or any other individual otherwise connected to, a company can be made jointly and severally liable for amounts that are payable to HMRC by the company. The regime is also extended to members and shadow members of LLPs.

HMRC will issue a JLN notice to individuals, if certain criteria are met. HMRC will need to establish the liability has arisen through tax avoidance, evasion or phoenixism.

An individual receiving a JLN will be jointly and severally liable (with the new company) for any amounts due to HMRC from the new company when the notice is issued, or which arise during a period of five years from the issue of the notice, and will be jointly and severally liable (with any relevant old company) for any amounts still due to HMRC from that old company.  Although a  JLN can be appealed, it would appear that the “limited liability" status of companies may be sidestepped in these circumstances.

Due to the C-19 pandemic more business than normal are struggling, and may possibly need to restructure which may need to involve an insolvency process.  Please telephone us (0345 260 0101) or email, for help.

Article Written By: Michelle Breslin, Insolvency Practitioner, at Frost Group

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