HMRC have published ‘Tax abuse and insolvency: A discussion document – summary of responses’ confirming that legislation will be introduced to protect against loss of revenue for HMRC in insolvency cases.

The consultation ‘Tax abuse and insolvency: A discussion document’ sought comments on the transfer of liabilities to directors and other responsible persons, or the alternative proposal to make them jointly and severally liable in cases of tax avoidance or evasion through insolvency.

Respondents’ comments included:

  • HMRC are right to counter those running up tax debts through avoidance or evasion.
  • Joint and several liability was considered to be a more flexible and clear option than an option allowing for a transfer of liabilities.
  • Joint and several liability would also ensure that the company still has a liability.
  • The measures should focus closely on avoidance and evasion to avoid compromising limited liability.
  • HMRC should make greater use of existing powers alongside new proposals.
  • There must be clear safeguards and rights of appeal.
  • Definitions of other responsible persons must be precise.

HMRC have confirmed:

  • Definitions will be clear and safeguards will be in place to prevent disproportionate outcomes.
  • Forms of non-compliance that are within the measures will be clearly defined.
  • The measures will only apply when HMRC considers avoidance or evasion has taken place, or where there is evidence of Phoenixing.

Following the consultation and announcements, the chancellor announced at Budget 2018:

  • From Royal Assent of Finance Bill 2019-20, HMRC will be able to make directors jointly and severally liable for company tax liabilities where there is a risk the company will deliberately enter insolvency as part of tax avoidance.

Links

Tax abuse and insolvency: a consultation

TAAR: distributions on a winding up (anti-phoenixing rules)

External link

Tax abuse and insolvency: A discussion document – summary of responses

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