Companies shutting up shop with vast amounts of money still owed to HMRC contribute to the UK tax gap which was almost £40bn in the 2022/2023 tax year. HMRC is ramping up its efforts to recover such tax by pursuing directors and other senior members of these businesses.
There were 52 joint and several liability notices issued in 2022/2023, which is a 225% increase from the previous year. With an average bill of £290,000, this is an attempt to claw back over £15m in tax. Although small to the scale of the tax gap, increases in HMRC's activity can be expected.
In 2021/2022 HMRC liability notices were just £2.3m, with only 16 issued.
In large cases, directors of insolvent companies lose their assets to bankruptcy when having to pay huge bills. Company Insolvency figures are persistently rising, which will lead to a further increase in liability notices being issued, and possibly increasing the UK tax gap. In 2023 there were the 25,158 company insolvencies, which is the highest since 1993.
HMRC is making it clear that where there is evidence of deliberate behaviour, company directors whose businesses leave large unpaid tax bills behind when they close will not walk away without paying up. It is clear HMRC are willing to go after any of the directors or other individuals connected with the management of companies who have sufficient personal assets to pay.
Our advice to any director of a struggling business is that they should take tax, legal or insolvency advice if their company may become insolvent with substantial tax debts. Sadly, even directors of businesses in genuine financial stress could get caught up in this approach particularly if HMRC has good reason to believe there will be a tax liability relating to tax avoidance or evasion arrangements.