30 November 2021

Insolvency and COVID-19 Fraud – Directors Personally Liable for Company Debts

Written by Neasa Quigley

HMRC has published new guidance on the Joint Liability Notice (“JLN”) regime introduced by the Finance Act 2020 (“the Act”). Under this regime, company directors and persons connected to a company can be made personally liable for outstanding tax in certain circumstances, including coronavirus support payments. Given that the auditor general has estimated that almost £9,000,000 of ineligible payments were made under the Localised Restrictions Support Scheme in Northern Ireland, the JLN regime may come into sharp focus.

In what circumstances can a JLN be used?

If a company is subject to an insolvency procedure or there’s a serious possibility of it becoming insolvent, and that company:

  • has engaged in tax avoidance or evasion;
  • has incurred penalties for facilitating avoidance or evasion; or
  • is subject to an income tax charge as a result of receiving a coronavirus payment it was not entitled to.

Tax Avoidance and Evasion

There are five conditions for the valid issue of notice JLN in the case of tax avoidance and tax evasion – further detail can be found here.

Repeated Insolvency

HMRC can issue a JLN for repeated insolvency where the following conditions are met:

Condition A: The individual had a ‘relevant connection’ with at least two ‘old’ companies in the five-year period before the notice was given; each company became subject to an insolvency procedure during that period; and at the time of the insolvency procedure each company either had a tax liability or had failed to submit a relevant return or another document, or an act or omission prevented HMRC from dealing with a submitted return, or other document.

Condition B: A ‘new’ company has been carrying on the same or a similar trade or activity as each of the two ‘old’ companies (or any two old companies if there are more than two).

Condition C: The individual has had a ‘relevant connection’ with the new company at any time in the five-year period.

Condition D: When the notice was given at least one of the old companies in question had a tax liability of more than £10,000 and 50% of the companies’ total liabilities to their unsecured creditors.

Relevant connection is defined as meaning an individual being a director, shadow director or participator in the company or in the case of a new company is concerned (directly or indirectly) or takes part in management of the company.

Taxation of coronavirus support payments

The Act also introduces powers for HMRC to investigate company directors, shadow directors and management who are suspected of abusing the rules of the Coronavirus Job Retention Scheme (CJRS) and to recover monies paid under the CJRS to which the employer was not entitled.

What if the company no longer exists?

If the company that received the coronavirus support payment no longer exists, where reference is made to an individual being jointly and severally liable with the company, this means that person is:

  • solely liable for the Income Tax liability where no other individual has been given a joint liability notice for that liability, or
  • jointly and severally liable with anyone else that has been given a joint liability notice for the Income Tax liability.

What does this mean in practice?

A JLN can have serious consequences for companies and their directors, as well as directors in their personal capacities.

The person receiving the JLN is jointly and severally liable for any amounts:

  • due to HMRC from the new company when the notice is issued, and which arise in the five years from the issue of the notice and while the notice remains in effect; and
  • amounts still due to HMRC from the old companies in question (if applicable).

Directors who have managed two failed companies over a five year period should seek advice on their exposure before embarking on a third venture.

As regards covid-19, Schedule 16 paragraph 9 of the Act entitles an HMRC officer to make an assessment as to the amount which ought to be charged to a person who has received an amount of a coronavirus support payment to which that person was not entitled. The amount of income tax chargeable is the amount equal to so much of the coronavirus support payment as the recipient is not entitled to, and as has not been repaid to the person who made the coronavirus support payment.

All directors, even those not involved in the claiming of CJRS payments, can be held personally liable for the repayment of funds to HMRC, and as such, directors should ensure that any CJRS claims made on behalf of companies of which they are officer, were made correctly and that any payments received were used properly.


  • As this is a relatively new measure, HMRC will need to be consistent in its approach, or risk a flood of appeals to the First-tier Tribunal.
  • The regime is not retrospective. The legislation applies to liabilities relating to periods that ends on or after 22 July 2020.
  • There are various statutory protections in place - taxpayers served with the notice can ask within 30 days for an internal review of the decision to issue the JLN, and there is also the right of appeal to the independent First-tier Tribunal.
  • The relevant provisions of the FA 2020 have been drafted widely as a means to mitigate HMRC’s losses following insolvency – it remains to be seen if the drafting could potentially implicate more individuals than originally anticipated.

If you have any queries or require further advice, please contact a member of the Carson McDowell Corporate team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

About the author

Neasa Quigley


Neasa Quigley is Senior Partner at Carson McDowell and head of the firm’s Energy team. Neasa has over 26 years’ experience as a corporate lawyer, specialising in the energy and technology sectors.

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