On 7 November 2018 the UK government published a summary of responses to the consultation on tax abuse and insolvency held earlier in 2018.

In April 2018 the government issued a consultation document exploring ways to combat the deliberate abuse of the insolvency legislation to avoid or evade tax liabilities. including through the use of “phoenixism.”

The word “phoenixism” refers to the repeated non-payment of tax through the practice of running up tax liabilities in a limited liability company, then avoiding paying the liabilities by making the company insolvent. A new company is then set up to carry out the same practice again.

The consultation looked at several types of behaviour related to the abuse of corporate insolvency legislation including tax avoidance, tax evasion and repeated non-payment of tax. Potential solutions identified by the government included further legislation, operational measures or other action.

The consultation aimed only to target companies that exploit the insolvency rules for tax avoidance or evasion. Companies entering insolvency for genuine commercial reasons would not be affected.

Comments were invited on two potential approaches to this problem. The first approach would be to transfer liability from the company to its directors and other officers in certain circumstances; and the other possibility was to introduce joint and several liability for the people linked to the tax avoidance or evasion.

HMRC received 28 responses to the consultation, including written responses and comments given in meetings. These responses came from 11 representative bodies; 13 professional advisors; and 4 individuals.

This response document confirms that the government will legislate in 2019 to 2020 to allow HMRC to make directors and other persons involved in company tax avoidance, evasion or phoenixism jointly and severally liable for tax liabilities that arise from those activities where the company becomes insolvent.