New figures released from the Insolvency Service show that HMRC are continuing to pursue company directors and others connected with the management of companies for outstanding tax debts. 

HMRC have achieved some success with their efforts to force directors to pay more to help settle the tax affairs of their insolvent businesses. In the previous 12 months to March 31st 2023 the amount recouped to the taxpayer rose from £2.3 million to £15 million. 

This clearly signposted direction of travel should warn directors that HMRC are now more likely than before to pursue personal assets if they shut down businesses without making arrangements for their tax bills to be met. 

Especially if there is evidence of deliberate behaviour and actions to walk away without reaching out first. 

HMRC can issue “joint and several liability notices” which make directors personally liable and responsible for the unpaid tax debts of their companies if the business has entered into tax avoidance or evasion agreements when their company has entered into, or is likely to enter into, an insolvency procedure. 

The aims of these powers are to deter individuals from misusing insolvency processes such as creditors voluntary liquidations (CVLs) to close down the business partly or wholly to avoid these debts. 

In order for these to be invoked, HMRC must be satisfied that five conditions as set out in the legislation have been met. Only then may an authorised officer issue it to a director. 

What are the five conditions?

The five separate conditions that have to be satisfied are:-

  • The company has entered into tax avoidance arrangements or has engaged in tax evasive conduct
  • The company is currently subjected to an insolvency procedure, or there is a serious possibility of it becoming subject to one
  • The individual or individuals were responsible for the company’s conduct which they took part in, facilitated or assisted or from which they knowingly benefited
  • There is, or is likely to be, a tax liability relating to the tax-avoidance arrangements or to the tax-evasive conduct
  • There is a serious possibility that some or all of the tax liability will not be paid

In the last financial year three times more directors were pursued by HMRC for their customers’ tax debts than the previous 12 months. 

52 directors received an average demand for £290,000 in 2023/24 compared to 16 directors receiving demands for an average of £142,000 a year earlier. This is a 225% increase 

Chris Horner, insolvency director with BusinessRescueExpert, said: “The warnings and direction of travel from HMRC could not be clearer. Where there is evidence of deliberate behaviour and action, directors who leave large unpaid tax bills will be pursued for it.

“HMRC publishes a comprehensive guide to the duties and responsibilities of directors which they should all be familiar with in any case but even honest, diligent directors should get a second opinion. 

“Any business owner or director that owes a lot in corporation tax, VAT, PAYE or NICs should get professional advice before deciding what to do as this factor might influence their decision and shouldn’t be left to a whim.  

“Insolvency does allow businesses with outstanding debts including to HMRC to close down and liquidate but this new environment and approach also means that there is a risk that directors of businesses with genuine financial issues that cannot be resolved could be targeted too.”

If you’re a director or business owner with HMRC debt and are struggling to repay arrears or meet your financial obligations as and when they fall due – then get in touch with us.

One of our expert advisors will be able to work with you to discuss your options and depending on what you want to achieve with your company, how to reach your goals. 

You need to have a plan in place because HMRC are certainly following theirs closely and will for the foreseeable future.