By Elaine Wilcox, Restructuring and Insolvency Consultant, Armstrong Watson LLP

HMRC can now give joint and several liability notices to directors, shadow directors and certain other individuals connected to a company if it becomes insolvent. This means that people who do not appear on the director register can also be pursued.

A joint and several liability notice makes individuals jointly and severally liable for amounts the company owes to HMRC and applies to any period that ends on or after July 22, 2020. However, within their guidance HMRC state they will not give notices under the ‘repeated insolvency’ part of this legislation to ‘connected persons’ where they are satisfied that both of the following apply, the person: acted in good faith and had no material influence over the company’s affairs. The four conditions for giving a joint and several liability notice are:

1 - In the last five years the individual had a relevant connection to at least two ‘old companies’ that were subject to an insolvency procedure and had a tax liability;

2 - A ‘new company’ is or has been carrying on a similar trade to any two of the old companies;

3 - The individual has a relevant connection to the ‘new company’;

4 - The relevant old companies have a tax liability of more than £10,000 that is more than 50 per cent of the total amount of those companies’ liabilities to their unsecured creditors.

Where HMRC gives a joint and several liability notice to an individual for a repeated insolvency and non-payment case, that individual is jointly and severally liable with the new company for any unpaid tax liability of the new company which is unpaid on the day the joint and several liability notice is given, and any tax liability of the new company that arises during the period of five years beginning with the date the joint and several liability notice is given and while the notice continues to have effect.

However, if there is still any unpaid liability of one or both of the relevant old companies, the individual is also jointly and severally liable with that company (and with any other individual who is given such a notice) for that liability.

This is powerful legislation with wide reaching implications for individuals who misuse the insolvency procedure to escape personal liabilities. Directors should seek advice to ensure that they do not fall foul.

If you are concerned about your business liabilities please get in touch with our HMRC Negotiation team, contact elaine.wilcox@armstrongwatson.co.uk or phone 0808 144 5575.