Finance Act 2020 & Personal Liability for Company Directors

With the reintroduction of HMRC’s preferential status the focus of the Finance Act 2020 has been firmly set on the debate as to the fairness of this change.

Somewhat overlooked therefore are other provisions of the Finance Act 2020 in relation to the recovery of Company tax liabilities from a Director personally; in the event of multiple consecutive insolvencies.

In perhaps a welcome attempt by the Government to challenge the use of phoenix companies, HMRC will have the ability to hold Directors (including Shadow Directors) jointly and severally liable for Company tax liabilities under certain circumstances.

The criteria which are required to be met are set out in Schedule 13 of the Finance Act 2020; summarised below:

  1. In a five 5 year period a Director has had, at least, two failed companies (i.e. companies subject to an insolvency procedure);
  2. In the same 5 year period the Director sets up a third company;
  3. The failed companies have all traded in the same, or similar activity; and
  4. The failed companies have a total tax liability of more than £10,000, the tax liability was more than 50% of the total unsecured creditors, or the failed companies had not submitted tax returns.

If these criteria are met, HMRC will have the powers to issue a Joint Liability Notice to hold the Director jointly and severally liable with the old and new companies for their combined tax liabilities.

There are similar provisions in the Finance Act 2020 with regard to companies which have entered into tax-avoidance arrangements and the Directors who have facilitated or benefitted from those arrangements. In such circumstances Directors can again be made personally liable for their companies’ tax liabilities.