The Finance Act 2020: Provisions for Joint and Several Tax Liability for Directors, Managers, Shareholders and Lenders

The Finance Act 2020 provides that directors, managers, shareholders, lenders and others can be made jointly and severally liable for the outstanding tax debts of insolvent (or potentially insolvent) companies and limited liability partnerships (LLPs).

From 22 July, officers of HMRC may, if they consider the various conditions are met, issue a notice to directors and other relevant individuals who own shares or interests in, or who are involved in the management of, the company or LLP. Following receipt of a notice, the relevant individual is jointly and severally liable with the company (or LLP) for the outstanding tax liabilities set out in the notice and HMRC will be able to recover the relevant amount directly from the individual.

The Government has previously said that these rules should only apply to taxpayers who artificially and unfairly seek to reduce their tax bill through insolvency proceedings. However, the legislative provisions are extremely broad in their reach, and could potentially apply in a number of different scenarios.

For example, the rules have the potential to affect any individual that falls within the stated criteria (as to which see below), in some cases regardless of the individual’s involvement in, or actual knowledge of, the offending activity. It seems that an individual could be a step removed from, or perhaps even unaware of, the wrongdoing and still receive a joint liability notice.

Further, it will be down to an HMRC officer to determine whether the criteria for liability are met. It may be possible for different HMRC officers to take different views, which could lead to an inconsistency in approach, although it is to be hoped that such officers will be given appropriate training to try to minimise any such inconsistencies. There is only limited scope for review or appeal.

Given their potential breadth of application, the impact of these new rules will need to be carefully considered when implementing any restructuring involving HMRC liabilities, particularly when dealing with large group structures with weak corporate governance.

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