The Finance Act 2020 - Legal Advice for Directors

The Finance Act 2020 has brought in changes for the position of HMRC in the creditor hierarchy upon the insolvency of a company. From 1 December 2020, HMRC will be moved up the hierarchy for certain debts so that they will be entitled to their share of the insolvency assets before both floating charge holders and unsecured creditors. At present, HMRC rank as an unsecured creditor.

The HMRC liabilities that this will apply to are as follows:

• VAT
• PAYE
• Student Loan Repayments
• Construction Industry Scheme deductions
• Employee National Insurance contributions

Tax Avoidance and Tax Evasion

Where directors have engaged in tax avoidance or tax evasion, HMRC now have the ability to serve them with a Joint Liability Notice if there is a risk that the tax will not be paid. This will apply where the company is subject to an insolvency procedure or there is a serious possibility that this will become the case.

Repeated Insolvencies

Further, the Act has introduced joint and several liability for individuals who have been directors of a number of companies that have been subject to insolvency procedures.

If an individual has been a director in two or more companies in a five-year period which have been subject to insolvency procedures (preceding the service of the Joint Liability Notice), and is currently involved in a new company which carries on in the same trade or similar activity to the other companies, the director is liable for the tax incurred by the new company as at the date of Notice and for five years preceding that date.

In relation to the previous failures, HMRC have the ability to recover tax liabilities from the previous companies, irrespective of whether they are still in existence or not. If the company has been dissolved, then the director is solely liable for the outstanding tax due at the date of dissolution.