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HMRC’s power to issue joint and several liability notices explained

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Published: 01 Dec 2021 Update History

HMRC can issue notices to transfer tax liabilities of companies and limited liability partnerships to directors, shadow directors and other individuals connected with managing the business. ICAEW’s Tax Faculty explains the circumstances in which these powers might be used, including for fraudulent COVID-support claims.

Finance Act 2020 introduced new powers for HMRC to issue notices of joint and several liability to directors, shadow directors and other individuals connected with the management of companies, and members and shadow members of limited liability partnerships (LLPs). Similar rules for fraudulent COVID-support claims apply only to companies and do not extend to LLPs.

These notices effectively transfer tax liabilities of a company or LLP to the individuals involved with its management, whose personal assets could be used to pay the tax due. 

There are also several taxpayer safeguards built into the rules:

  1. The new joint and several liability provisions extend to the more serious end of the market, including those suspected of tax avoidance or evasion, fraudulent COVID-19 support claims and repeated corporate insolvency.
  2. Anyone who receives a joint and several liability notice is able to ask for either an HMRC internal review or to appeal the notice within 30 days of the notice being issued.
  3. Notices will only be issued in circumstances where there is a serious possibility that the corporate will go into insolvency, and that the tax charges will not be met by the corporate. The legislation does not define what a serious possibility of insolvency means, but HMRC guidance set out that this would apply if a company does not have enough assets to cover its liabilities even though formal insolvency proceedings have not started. It includes examples of scenarios where HMRC will assume that there is a serious possibility the corporate cannot meet its tax liabilities.

The joint and several liability notices for tax avoidance and evasion and cases of repeated insolvency take effect for accounting periods that end on or after 22 July 2020. However, the rules for fraudulent COVID-support claims apply to all payments received, regardless of the accounting date of the company. 

The new legislation is one of several tools available to HMRC to address abuse in the tax market – in particular knowingly making incorrect claims for COVID-19 support. This has been matched by renewed HMRC focus on tax debt collection.

Read more:

Overview of joint and several liability notices for the taxation of coronavirus (COVID-19) support payments - GOV.UK (www.gov.uk)

Overview of joint and several liability notices for tax avoidance, tax evasion and repeated insolvency - GOV.UK (www.gov.uk)

TAXguide 05/21: Tax issues in 2021 | ICAEW

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