Piercing the corporate veil continued: Joint and Several Liability Notices

Recently, we wrote about HMRC’s powers to make company directors personally liable for company debts. Until relatively recently, HMRC’s powers to pierce the corporate veil were restricted to Personal Liability Notices (PLN).

The position has changed since Joint and Several Liability Notices (JLN) were introduced in the Finance Act 2020.

What is a Joint and Several Liability Notice?

JLNs are HMRC’s latest weapon to tackle tax avoidance, evasion and phoenixism, and HMRC are using them!

With a Personal Liability Notice (PLN), HMRC can only transfer certain company penalties and NIC liabilities to individuals in specific circumstances.

JLNs allow HMRC to make individuals personally liable for all liabilities due to HMRC under any statutory provision. That’s the tax, interest and the penalties.

The aim of the legislation is to deter individuals from using insolvency as a way of getting out of paying their tax liability. It does this by allowing HMRC to give joint and several liability notices to directors and other individuals connected to a company. A joint and several liability notice will make the individuals jointly and severally liable for amounts the company owes to HMRC.

The legislation applies where a company is subject to an insolvency procedure or there’s a serious possibility of it becoming insolvent, and that company has:

• engaged in tax avoidance or evasion, or
• incurred penalties for facilitating avoidance or evasion, or
• been associated with previous companies that have become insolvent

What joint and several liability means

Where HMRC believes a company is insolvent or about to become insolvent, and the amount owed will not be paid, HMRC may give a notice making an individual (or several notices making several individuals) jointly and severally liable for the relevant tax liabilities.

This means that all the individuals given a notice will be jointly and severally liable with the company for paying these liabilities.

HMRC will pursue all individuals for the amount owed, taking debt recovery action if necessary, against whichever of them has sufficient assets to pay. It does not matter who pays or how much each individual pays, as long as the amount is paid in full.

When can HMRC issued a joint and several liability notice?

A joint and several liability notice may be given for the following:

• tax avoidance and tax evasion
• repeated insolvency and non-payment
• where a penalty is charged for facilitating avoidance or evasion
  There are specific conditions that must be satisfied before HMRC can issue a JLN and they vary depending on the which one of the situations above applies.

Tax avoidance
For the purposes of the JLN legislation, ‘tax avoidance’ covers situations where:

• a notice of final decision has been given under the general anti-abuse rule (GAAR) legislation
• a ‘follower notice’ has been given and not withdrawn
• arrangements are notifiable under the disclosure of tax avoidance schemes (DOTAS) legislation

Tax evasion
For the purposes of the JLN legislation, ‘tax evasion’ covers:

• giving any deliberately inaccurate return, claim, document or information to HMRC
• deliberately failing to comply with an obligation to notify liability to tax

HMRC is increasingly issuing JLNs to individuals in cases of suspected fraud, for example, investigations conducted under Code of Practice 9 (COP9) or the Contractual Disclosure Facility (CDF). These investigations are always carried out by HMRC’s Fraud Investigation Service.

Repeated insolvency

‘Repeated insolvency and non-payment’ means the practice of a company running up tax liabilities and avoiding paying them by making the company insolvent. Then, a new company is set up which carries on the same or a similar business. This practice is often known as ‘phoenixism’ or ‘phoenixing’.

For HMRC to issue a JLN in this situation, there must have been at least two ‘old companies’ that were subject to an insolvency procedure and had a tax liability, and the ‘new company’ must have been carrying on a similar trade.

What should I do if I receive a JLN?

If HMRC alleges that there has been avoidance or evasion at any stage during a tax investigation, urgent action and professional advice is essential.

We can help you review your individual circumstances and determine whether HMRC’s actions are lawful and proportionate, and the correct processes have been followed.

If you have received a Joint and Several Liability Notice, or you are concerned that HMRC may be about to issue one, please feel free to contact our experienced team for expert advice.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

InTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. But we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.