While the ability to pre-empt the directors from sidestepping the taxes owed is a smart and understandable move, there must surely be a concern that HMRC could be overzealous – a claim that has been levelled at HMRC in recent times by the tax tribunal.
Anecdotally at least, there have been cases of directors who have become exasperated with HMRC’s approach in an enquiry, and stated that they might as well put their company into liquidation.
In the unfortunate situation that the directors were to say this to HMRC, merely out of frustration, would this be sufficient for HMRC to justify a notice on the basis that there was a serious risk that the company would seek to use insolvency to avoid paying taxes?
While this may be seen as an extreme example, there is no doubt that many directors feel significant pressure when HMRC checks their records, as there is always the concern as to why their business is under the spotlight.
HMRC is tasked with critically analysing the information available to them and where they have reason to suspect or discover that tax has been lost, they can estimate the tax liabilities and where agreement cannot be reached, formally seek to recover the tax due.
It will be interesting to see whether this ‘pinch point’ in the negotiations with HMRC may lead to the joint and several notices being issued.
It is always advisable that professional advice is sought by directors who have disputes with HMRC.
The new powers to issue joint and several liability notices will almost certainly increase the risks to directors of attempting to resolve matters on their own.
While there is a right of appeal, the implications of the notices are serious.
Once a notice becomes final the directors are liable for the company’s tax liabilities for up to five years where phoenixism is the concern, and for the company’s liabilities where there has been tax avoidance or evasion – and for the penalty where the company facilitated tax avoidance or evasion.
It should not be forgotten that the majority of businesses that enter into insolvency procedures have genuine commercial and financial difficulties and HMRC recognises that the principles of insolvency should be respected.
The draft legislation does contain safeguards to only target directors that deliberately evade taxes or are serial offenders.
Consideration is given to turnaround specialists that are genuinely attempting to save the company and acted in good faith.
The real target will be directors, shadow directors or controlling parties that orchestrated or benefited from the avoidance or evasion.
