HMRC seeks views on insolvency regime abuse

HMRC is exploring ways to tackle those who deliberately abuse the insolvency regime in trying to avoid or evade their tax liabilities, including through the use of phoenixism, and is seeking feedback on a discussion document

At Autumn Budget 2017 and Spring Statement 2018, the government announced that it intends to address concerns about a minority who artificially and unfairly seek to reduce their tax bill through the misuse of insolvency of companies or similar structures, saying they combine non-compliance with their tax obligations with an abuse of the insolvency regime’s aims.

The discussion paper looks at several behaviours related to misuse of corporate insolvency - tax avoidance, tax evasion and repeated non-payment of tax - to identify potential solutions. These could include legislation, operational measures or other action.

It covers what the problem is, HMRC’s existing powers, possible approaches, safeguards, and the scope of any legislation.

The paper offers several examples of mis-use of the insolvency regime. HMRC says a number of methods of tackling this type of behaviour already exist in discrete areas of the tax code. One way of addressing the abuses more efficiently would be to adopt these principles more widely.

For example, HMRC can already transfer liability of certain tax debts to company directors and officers in particular circumstances. This power could be extended to transfer liability to tax debts to the persons responsible for the avoidance, evasion or repeated non-payment of taxes when there is a risk the funds will be lost in insolvency.

In addition, the principle of joint and several liability would enable HMRC to hold the persons responsible for the avoidance, evasion or repeated non-payment of taxes jointly and severally liable for tax debts in the event that the company could not meet the tax debts.

Any potential powers in this area could be targeted by defining the forms of non-compliance that would trigger such a measure (i.e. tax avoidance, evasion and repeated non-payment); the behaviour of the person(s) who would be impacted by the measure; and/or the behaviour of the person(s) who would not be impacted by the measure.

The deadline for comments is 20 June.

Tax abuse and insolvency: a discussion document is here.

Report by Pat Sweet

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