Schedule 13 of the Finance Act 2020 (the “FA 2020”) introduced measures that allow HMRC to give joint and several liability notices (“JSLN”) to company directors, shadow directors and members of LLPs in certain circumstances. Although the FA 2020 came into force on 22 July 2020, HMRC only recently published a guidance note about these new powers.
JSLNs provide HMRC with a power to recover from individuals taxes that might otherwise not be paid by a corporate taxpayer.
When does it apply?
There are three cases in which these provisions apply.
(1) Tax avoidance and tax evasion cases
The first case is when a company has entered into tax avoidance arrangements or has engaged in tax evasive conduct. Paragraph 6 establishes what comprises that type of arrangement, e.g. one for which a notice of final decision has been given under the GAAR legislation.
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The conditions are: (1) that the company is subject or likely to be subject to an insolvency procedure; (2) that the individual was responsible for the company’s conduct or benefited from it; (3) that there is, or is likely to be, a tax liability related to the conduct, and (4) that there is a serious risk that the tax liability, or part of it, will not be paid.
(2) Repeated insolvency and non-payment cases
The second case is related to repeated insolvency and non-payment. It is aimed at those who set up companies that do not pay their tax liabilities – becoming insolvent after some time – and “replace” them by setting up a new company that carries on the same business.
The conditions are: (1) that during the last five years there have been two or more old companies connected to an individual, each of which became insolvent and had a tax liability; (2) that a new company connected to the individual has been carrying on a similar business to the old ones, and (3) that the old companies have a tax liability of both more than (a) £10,000 and (b) 50% of the total amount of those companies’ liabilities to their unsecured creditors.
(3) Penalties for facilitating tax avoidance or evasion
The third case is where a penalty for facilitating tax avoidance or evasion has been issued.
The conditions are: (1) that the company is subject or likely to be subject to an insolvency procedure; (2) that the individual was a director or shadow director of the company or a participator in it at the relevant time, and (3) that there is a serious risk that the penalty, or part of it, will not be paid.
Time limits
For tax avoidance and evasion cases, and for repeated insolvency and non-payment cases, Schedule 13 of the FA 2020 only applies to liabilities relating to any period that terminates on or after 22 July 2020. If the period started before that date, the legislation applies to the entire period. For penalties for facilitating tax avoidance or evasion, it applies only to defaults and events occurring on or after the same date.
Are there any safeguards?
Yes, Schedule 13 of the FA 2020 does contain safeguards:
- Important decisions must be taken by a properly qualified member of staff known as an “authorised officer”.
- HMRC must withdraw a JSLN given to an individual if any condition was not met when giving the notice.
- HMRC must also withdraw a JSLN given to an individual if it is not necessary for the protection of the revenue that the JSLN continues to have effect.
- HMRC must offer a review of its decision to an individual who has been given a JSLN, provided the tax liability has been established. The individual has 30 days to accept the offer.
- An individual has the right to appeal against a JSLN to the First-tier Tribunal within 30 days from the date shown on the JSLN, or from the date of HRMC’s notice informing the individual of the outcome of the review mentioned in the previous point.
- An individual has the right to take full part in the appeal hearing or to continue the appeal if the company is unable or unwilling to do so, provided the individual was given a JSLN and the company is subject to an insolvency procedure.