It is probably fair to say that running a business has not been easy over recent years, with the impacts of Covid, the cost-of-living crisis, world events and rising interest rates. Insolvency statistics seem to support this, with record numbers of companies becoming formally insolvent.

Whilst such facts and figures will likely be a cause of concern for those that run their own businesses, it has historically been the case that, unless a director has guaranteed a debt of a company or acted improperly, then they will not normally be held responsible for company debts if the worst happens, and their company fails.

However, this has changed. What some may not have noticed during the fast and ever-changing times during the pandemic, is that the Finance Act 2020 introduced a new power that enables HMRC to issue a joint and several liability notice to directors where, subject to the satisfaction of certain other conditions;

• The directors have, at any time during the five-year period ending on the date a liability notice is issued, been involved repeatedly with companies that enter insolvency with unpaid tax liabilities or unsubmitted returns; or
• Their company has entered into tax avoidance arrangements or engaged in tax evasive conduct and is either insolvent or reasonably likely to become subject to an insolvency process.

Where a director is issued with a liability notice in the case of repeat insolvency offences, that director could be held jointly and severally responsible for the insolvent companies’ liabilities and also any current tax liability of their new company together with tax liabilities incurred over the five years following the issue of the liability notice.

It should be noted, however, that a tax liability under this act does not include a liability that was incurred in a period that ended before the act was passed on 22 July 2020.

The conditions that must be met for a liability notice to be issued are quite narrow, but with this legislation having been in place for three years now, there may be some directors for whom this could start to become an issue.

If you would like to discuss any issues surrounding corporate insolvency or directors responsibilities in the light of insolvency, please feel free to contact one of the team.