Overview of joint and several liability notices for tax avoidance, tax evasion and repeated insolvency
How HMRC deals with customers who are involved in tax avoidance, tax evasion or repeated insolvency who receive a joint and several liability notice, including how notices interact with penalties and safeguards.
This guidance is about the ‘Joint and several liability of company directors etc’ legislation at Schedule 13 of the Finance Act 2020. It tells you more about the legislation, including who it is intended to apply to and how.
The legislation helps deliver fairness across the tax system. It does this by:
- deterring the use of tax avoidance and evasion
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influencing the behaviour of those taxpayers who:
- see insolvency as a way of avoiding their tax or penalty liabilities in connection with avoidance or evasion
- repeatedly fail to meet their tax liabilities through insolvency
Where this guidance refers to a company, this can also mean a limited liability partnership.
The aim of the legislation is to deter individuals from using insolvency as a way of getting out of paying their tax liability.
It does this by allowing HMRC to give joint and several liability notices to directors, shadow directors and certain other individuals connected to a company. A joint and several liability notice will make the individuals jointly and severally liable for amounts the company owes to HMRC.
The legislation applies where a company is subject to an insolvency procedure or there’s a serious possibility of it becoming insolvent, and that company has either:
- engaged in tax avoidance or evasion
- incurred penalties for facilitating avoidance or evasion
When the legislation applies
Tax avoidance and tax evasion cases
The legislation applies to liabilities relating to any period that ends on or after 22 July 2020. If a period starts before 22 July 2020 and ends on or after 22 July 2020, the legislation applies to the whole period.
For example, a corporation tax liability for a period ending the day after 22 July 2020 is within the scope of this legislation.
The legislation does not apply to liabilities relating to periods that end before 22 July 2020. So, Corporation Tax payable for an accounting period ending the day before 22 July 2020 is not within the scope of this legislation.
Repeated insolvency and non-payment cases
The legislation applies to liabilities relating to all periods that end on or after 22 July 2020.
Example 1: applying commencement to repeated insolvencies
Mr F and Mr P are directors of Coffee Ltd, Tea Ltd and Café Ltd, each of which operates a café and sandwich bar.
In 2019 Coffee Ltd is wound up and dissolved with an unpaid VAT debt due to HMRC for the VAT periods March 2018 and June 2018.
In 2021, the same then happens to Tea Ltd and Café Ltd each with amounts of VAT outstanding for the VAT periods September 2020 and December 2020 respectively. In each case, the unpaid VAT amounts were over £10,000 and represented more than 50% of the amounts due to unsecured creditors.
When Mr F and Mr P wound up Coffee Ltd, they set up a new company called Sandwich Ltd and in 2021 transferred the activities of all 3 previous companies into it.
In deciding whether to give joint and several liability notices to Mr F and Mr P in respect of these repeated insolvencies, HMRC cannot take into account the winding up of Coffee Ltd. This is because its outstanding VAT liability relates to VAT periods which ended before 22 July 2020.
However, the outstanding VAT amounts of both Tea Ltd and Café Ltd relate to tax periods ending after 22 July 2020 and so HMRC can take these insolvencies into account.
Therefore, HMRC gives Mr F and Mr P joint and several liability notices in respect of the liabilities of Tea Ltd and Café Ltd, plus any future liabilities of Sandwich Ltd.
Facilitating avoidance or evasion
The legislation applies only to defaults and events occurring on or after 22 July 2020.
Example 2: commencement for facilitating avoidance or evasion – DOTAS (Disclosure of Tax Avoidance Schemes)
2good2betrue Ltd, a promoter of notifiable arrangements, had a duty to disclose the details of the scheme to HMRC under DOTAS on 1 February 2017. The promoter did not do so and so became potentially liable to penalties under section 98C Taxes Management Act 1970 (TMA70).
The decision whether or not to impose a penalty and its amount is made by the tribunal under section 100C TMA70. After the tribunal has determined a penalty against the promoter, the company fails to pay it and becomes subject to an insolvency procedure.
Situation A
2good2betrue Ltd discloses the scheme on 1 April 2020.
HMRC start penalty proceedings under section 100C TMA70 on 1 November 2020.
The tribunal determines a penalty for the period 1 February 2017 to 31 March 2020.
HMRC cannot give joint and several liability notice to the directors. This is because the penalties relate to a period ending before 22 July 2020.
Situation B
2good2betrue Ltd discloses the scheme on 1 September 2020.
HMRC has previously applied to the tribunal for it to determine a penalty on 1 April 2020.
The tribunal determines a penalty for the period 1 February 2017 to 31 August 2020.
HMRC cannot give notices of joint and several liability to the directors. This is because HMRC initiated the proceedings before 22 July 2020.
Situation C
2good2betrue Ltd discloses the scheme on 1 September 2020.
HMRC applies to the tribunal for penalties on 1 April 2021.
The tribunal determines penalties for the period 1 February 2017 to 31 August 2020.
HMRC may give notices of joint and several liability to any individual who was a director during the period 1 February 2017 to 31 August 2020. This is because the penalty relates to a period ending on or after 22 July 2020 and the penalty proceedings were initiated on or after that date. Each notice will specify the amount of the penalty determined by the tribunal.
Example 3: commencement for facilitating avoidance or evasion – enablers of offshore evasion
Offshore Ltd helps a client to hide the gain made on the sale of a large capital asset by moving it offshore through a chain of structures during 2018.
The transaction should have been included in the client’s Self Assessment return for the year 2018/2019 but was deliberately omitted.
HMRC enquire into the client’s return, discover the inaccuracy and issue the client with a penalty for a deliberate inaccuracy.
On 1 February 2021 they issue Offshore Ltd with a penalty under Schedule 20 to Finance Act 2016 for enabling the client’s offshore evasion.
Although the penalty was issued after the 22 July 2020, HMRC cannot give joint and several liability notices to the directors of Offshore Ltd because their tax liability arises from an event occurring before 22 July 2020 (Clause 1(2)(b)).
The legislation applies to liabilities to HMRC of a company under any statutory provision, or under a contract settlement, and includes penalties and interest.
For convenience, this guidance will refer simply to ‘tax liabilities’, but the expression should be read in this wider sense.
What joint and several liability means
Where HMRC believes a company is insolvent or about to become insolvent, and the amount owed will not be paid, as described in this guidance, HMRC may give a notice making an individual (or several notices making several individuals) jointly and severally liable for the relevant tax liabilities.
This means that all the individuals given a notice will be jointly and severally liable with the company for paying these liabilities.
HMRC will pursue all individuals for the amount owed, taking debt recovery action if necessary, against whichever of them has sufficient assets to pay. It does not matter who pays or how much each individual pays as long as the amount is paid in full.
How this guidance interacts with other requirements and guidance
This guidance explains how this legislation will operate and should be read with the guidance in place at the time the notices are given for the relevant HMRC business areas. These are:
- Counter Avoidance (Promoters of Tax Avoidance Schemes (POTAS), DOTAS, enablers and General Anti-Abuse Rule (GAAR) guidance)
- Debt Management
- Insolvency
- Fraud Investigation Service
When a joint and several liability notice may be given
A joint and several liability notice may be given for the following:
- tax avoidance and tax evasion
- repeated insolvency and non-payment
- where a penalty is charged for facilitating avoidance or evasion
A joint and several liability notice can only be given by an authorised officer.
Before an authorised officer can give a joint and several liability notice, they have to be satisfied that all of the conditions set out in the legislation have been met.
Interaction with penalties
This section only applies to:
The amount for which an individual is jointly and severally liable under a notice in such a case will be reduced by the amount of any penalty they have paid relating to the company’s tax liability under any of the following provisions:
- section 61 of VATA 1994 (VAT evasion: liability of directors etc)
- section 28 of FA 2003 (liability of directors etc where body corporate liable to penalty for evasion of customs duty etc)
- paragraph 19 of Schedule 24 to FA 2007 (liability of company officer where company liable to penalty under that Schedule)
- paragraph 22 of Schedule 41 to FA 2008 (liability of company officer where company liable to penalty under that Schedule)
Safeguards (including rights of review and appeal)
This legislation contains the following safeguards.
Authorised officers
HMRC will make sure there’s appropriate oversight of this legislation and that key decisions are only taken by a suitably qualified member of staff known as an authorised officer.
An authorised officer is authorised by the Commissioners of HMRC to give approvals for joint and several liability notices.
They will make sure HMRC only gives joint and several liability notices to those who misuse insolvency to side-step their tax responsibilities and where all the conditions are met.
Withdrawal or modification of notice
HMRC must withdraw a joint and several liability notice given to an individual, if either:
- any of the relevant conditions were not met when the joint and several liability notice was given
- it is not necessary for the protection of the revenue for the notice to continue to have effect
HMRC will also withdraw a notice in other cases where it is considered appropriate.
Where an individual has been given a joint and several liability notice, HMRC may vary the amount specified in the notice if it seems the amount is, or has become, too much or not enough.
Right of review
If HMRC gives an individual a joint and several liability notice and the relevant tax liability has been established, HMRC will offer the individual a review of its decision to give the notice.
The individual has 30 days to accept the offer of a review, unless HMRC gives an ‘extension notice’ specifying a later date. If the individual wants to accept HMRC’s offer of a review, they must do so in writing.
It is possible to accept HMRC’s offer for a review after the deadline for doing so, provided that HMRC is satisfied that both of the following apply:
- the individual had a reasonable excuse for not accepting the offer for a review within the permitted period
- the request is made without unreasonable delay once the reasonable excuse had ended
If the individual accepts the offer of review, HMRC must carry out the review within 45 days, unless a different period is agreed. The review will be carried out by an officer not previously involved in the case.
The individual will be given the opportunity to make comment and HMRC will take these into account during its review. The individual cannot accept HMRC’s offer of a review and appeal to the tribunal at the same time.
The individual is not able to challenge, on an appeal against a joint and several liability notice, the existence or amount of any tax liability of a company to which the notice relates. However, an individual can have the right to participate in an appeal against the company’s liability.
Right of appeal
If an individual wants to appeal against a joint and several liability notice, they must do so to the First-tier Tribunal, within the later of the following dates:
- 30 days from the date shown on the joint and several liability notice
- if HMRC have given an extension notice, by the date shown in the extension notice
- if the individual has accepted the offer of a review, 30 days from the date of HMRC’s notice telling the individual of the outcome of the review
If an individual does not accept HMRC’s offer of a review on time and HMRC do not accept that the individual had a reasonable excuse for requesting a review out of time an appeal may only be made if the tribunal gives permission.
The First-tier Tribunal must confirm the notice unless one or more of the following applies:
- it appears to the tribunal that any of the relevant conditions were not met
- it is not necessary for the protection of the revenue for the notice to continue to have effect
- an amount specified in the notice is incorrect
The tribunal may decide that the individual has no liability under the notice or vary the amount in the notice.
Appeal in respect of company liability
An individual may:
- take full part in the appeal hearing, for example by making submissions to the court on behalf of the company
- continue the appeal if the company is unable or unwilling to do so
The individual can do this if all of the following apply:
- the individual is made jointly and severally liable for a tax liability of a company
- the company is subject to an insolvency procedure
- an appeal by the company in respect of that tax liability has commenced but has not been determined
If a company does not appeal, an individual may appeal the company’s liability if both of the following apply:
- the individual is made jointly and severally liable for a tax liability of the company
- the company is subject to an insolvency procedure
The appeal must be made within 30 days of the date the joint and several liability notice is given, and may be made even if a time limit for the company to appeal has expired.
Get more information about appeals and reviews
You can find out more information about appeals and reviews in:
- disagree with a tax decision guidance
- the HMRC1: HM Revenue and Customs decisions – what to do if you disagree factsheet
To find out more about appealing to the tribunal:
- read the appeal to the tax tribunal guidance
- phone the Tax Tribunal Helpline on 0300 123 1024
Updates to this page
Last updated 14 October 2021 + show all updates
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Information in 'Example 1: applying commencement to repeated insolvencies' has been updated.
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First published.