Can directors be made liable for company tax debts?
Not just in terms of businesses they’ve helped support but also how the Treasury and HMRC intend to recoup some of the billions spent underpinning the economy over the spring and summer months.
One way will be to pursue directors that could now be personally held liable for the taxes of their companies owed in cases of tax evasion, tax avoidance or repeated insolvency and non-payment.
The Finance Act 2020 came into effect on July 22nd 2020 and introduced provisions giving HMRC authority to issue a Joint Liability Notice (JLN) to those directors if certain conditions are fulfilled.
A JLN could be issued for repeated insolvency and non-payment of tax if all of the following conditions are met:
The individual has been a director of at least two companies (known as the Old Companies) within a five year period AND:
- The Old Companies have been subject to an insolvency procedure during the five year period
- At the time of the procedure the Old Companies had a tax liability or failed to submit required returns or other documents relevant to the liability
- Another company (New Company) is or was carrying on the same or similar trade as the Old Companies and the individual was a director of the New Company during the five year period
- When the JLN is issued, at least one of the Old Companies has a tax liability and the total tax liabilities is either over £10,000 or represents 50% of the Old Companies liabilities to their unsecured creditors
The JLN would make the director jointly liable with the Old Companies for any tax liability at the date the JLN is issued and also with the New Company for any tax liability it owes at the date of the JLN and any tax liability arising within five years of the JLN being issued.
A repeated insolvency JLN has to be issued within two years of HMRC becoming aware of the facts that make it sufficient for them to issue the JLN.
Anybody issued with one has an automatic right of review by HMRC or a right of appeal to the First-Tier Tax Tribunal although both have deadlines for initiating them.
Chris Horner, Insolvency Director with Business Rescue Expert thinks the repeated insolvency JLN has been set up for a specific purpose.
“Given the combination of conditions attached to issuing a JLN, it would be a rare occurrence for any director to receive one.
“It’s primarily aimed at directors of phoenix companies who continued to trade without paying their tax liabilities and also covers businesses that prioritised creditors such as their suppliers leaving HMRC as the largest unsecured creditor in repeated insolvencies.
“To issue a JLN against an individual they have to have been a director of two failed companies within the five year period where HMRC has been the biggest creditor and be a director of a third company that needn’t be in insolvency but is in the same business or trade as the others.
“The risk of directors being pursued for their companies unpaid tax is quite small and specific and if any director was unfortunate enough to have been involved with two business failures within five years they should definitely seek advice on any potential exposure before launching another venture.”
Directors might have the hardest jobs in any business. Yes there are rewards they can enjoy that others can’t but all the pressure to keep the company alive is on them.
Not only that but if the company becomes insolvent then depending on their actions leading up to insolvency they could also be exposed to claims of misfeasance, wrongful or fraudulent trading, termination of employment and even disqualification from being a director.
Directors are also excellent at seeking out the best specialist advice and support whenever they need it.
We’re available for a free initial consultation anytime you want to talk about your ideas for your business and to go over possible solutions to any issues facing your company.
Our expert team of advisors have decades of experience between them and will likely have dealt professionally with any difficulty or problem you face.
Then you can get back to making your company as successful and profitable as it can be.