New HMRC powers under the Finance Bill 2020

The draft Finance Bill 2020 is currently passing through Parliament and is now in the Report stage.

Should the Finance Bill be passed in its current form, HMRC will be granted a number of new rights and powers which will affect insolvency practice.

Joint and several liability under the Finance Bill

In certain circumstances HMRC will have the power to make directors, shadow directors and participators in the management of companies jointly and severally liable to HMRC for that company’s tax liabilities.  This will also extend to members or shadow members of limited liability partnerships (LLPs). Where the company or LLP no longer exists, the individual made liable will be wholly responsible for the tax liability. This power can only be used where there is a risk that HMRC would otherwise be unable to make a recovery.

This HMRC power can be used where the company or LLP has begun (or is expected to begin) insolvency proceedings, and has been (or is expected to be) made liable for:

• tax avoidance;
• tax evasion;
• repeated insolvency; or
• facilitating avoidance or evasion.

To be made jointly and severally liable, the individual must have been wholly or partly responsible for the conduct that gave rise to the liability, taken a part in the conduct, or obtained a benefit which he should have known arose from that conduct (this being determined objectively).

A similar power will also be available in circumstances where a company that was liable for tax was wound up, but a new company was set up to continue the same business.

HMRC will be able to exercise this power by issuing a Joint Liability Notice to the individual they seek to make liable. The bill also provides a mechanism for reviewing and appealing a Joint Liability Notice, and for disputing the quantum of the liability.

Support payment recovery

Draft clauses to the Finance Bill 2020 have also been tabled, relating to the taxation of the support payments made under the Coronavirus Job Retention Scheme (CJRS) and Self-Employed Income Support Scheme (SEISS).

Under these draft clauses, HMRC will have additional powers to recover support payments under CJRS and SEISS. These powers will be used in situations where recipients were not entitled to the support payments or in situations where the payments were not used to pay employees, make pensions contributions, pay PAYE or pay National Insurance contributions.

HMRC will be able to recover support payments in these circumstances through imposing a new 100% tax charge on the payments. Should the company that received the support payments become insolvent, HMRC will also be able to make an officer of that company jointly and severally liable for the tax charge raised.

In addition, where the recipient’s conduct is considered to have been deliberate, HMRC will be able to charge an additional penalty for the non-compliance. However, such a penalty will not be applied if the recipient of the support payment notifies HMRC about the deliberately incorrect claim within 30 days of the claim or, where the claim was made before the bill receives Royal Assent, within 30 days of the bill receiving Royal Assent.

Determination of tax chargeable

Where a tax return has not been delivered by the end of the filing date, and HMRC have reasonable grounds for believing that there was an obligation for a tax return to be delivered, then HMRC may (within three years of that filing date) make a determination of the amount of tax payable. This determination will have the same effect for the purposes of enforcement as if it were a self-assessment.

However, if a tax return is delivered within 12 months of the date of the determination, then this tax return will then supersede the determination.

Secondary preferential creditor

Finally, should the bill pass, HMRC will have their ranking in the event of a business insolvency changed.

From 1 December 2020, HMRC will have their ranking changed from being an unsecured creditor to being a secondary preferential creditor, in respect of unpaid VAT, PAYE and employees NIC.

This will have the effect of placing HMRC ahead of holders of floating charges and unsecured creditors on the distribution of the assets of the insolvent business. For other types of debt, HMRC will retain its present status.

Contact our insolvency experts to find out more about the new HMRC powers under the Finance Bill 2020.

This article has been co-written by Paul Caldicott and James Helps.