An HMRC Joint Liability Notice was introduced to deal with the Directors in circumstances when a tax liability arises or is expected to arise from tax avoidance, tax evasion, repeated insolvency or a penalty for facilitating avoidance or evasion.
The law in relation to an HMRC Joint Liability Notice is set out in Schedule 13 of the Finance Act 2020. It provides for an individual to be jointly and severally liable to HMRC, in certain circumstances involving insolvency or potential insolvency, for amounts payable to HMRC by a company.
They are not typical HMRC chasing letters or notices that one can anticipate from HMRC tax debt collectors.
They are a type of HMRC Personal Liability Notice.
When Can HMRC Issue A Joint Liability Notice?
HMRC can issue a Joint Liability Notice in a variety of cases as follows:
Tax Avoidance and Tax Evasion
In order for a Joint Liability Notice to apply in cases of tax avoidance and evasion the following needs to apply to a company:
- entered into tax-avoidance arrangements
- engaged in tax-evasive conduct
- the company is subject to an insolvency procedure such as Liquidation, Administration etc.
- serious possibility of the company becoming subject to an insolvency procedure
- serious prospect of tax going unpaid
The person in receipt of a Joint Liability Notice needs to be:
- responsible (whether alone or with others) for the company entering into the tax avoidance arrangements or engaging in the tax-evasive conduct
- received a benefit which, to the individual’s knowledge, arose (wholly or partly) from those arrangements or that conduct
Repeated Insolvency Cases
In order for a Joint Liability Notice to apply in cases of repeated insolvency, there need to be more than two companies involved within 5 years of the date of the JLN. When the third company enters an insolvency procedure with tax debts and or a failure to submit tax returns and or relevant omissions were made, then if the third company was in a similar trade to the others and there were tax liabilities over £10,000 or amounting to more than 50% of the debts of one of the other previous companies then the conditions for a JLN may well apply.
Facilitating Tax Avoidance Or Evasion
In order for a Joint Liability Notice to apply in cases of facilitating tax avoidance or evasion then the following will be required:
- a penalty issued to the company by HMRC or a penalty under any of the specified provisions has been imposed on a company by HMRC in respect of:
- penalties for breach of certain obligations relating to disclosure of tax avoidance schemes by promoters etc of schemes
- promoters of tax avoidance schemes: penalties
- penalties for enablers of offshore tax evasion or non-compliance
- penalties for enablers of defeated tax avoidance
- penalties for breach of certain obligations relating to disclosure of tax avoidance schemes by promoters etc of schemes
- the company is subject to an insolvency procedure or serious possibility of the company becoming subject to an insolvency procedure
- the individual was a director or shadow director of the company, or a participator in it
- serious possibility that some or all of the penalty will not be paid
Who Can Be Issued With A Joint Liability Notice?
A Joint Liability Notice can be issued to anyone acting as an officer of a company. However, mere failure to pay over tax will not necessarily trigger a Joint Liability Notice. HMRC will need to be able to show that the reason for the failure to pay tax was down to tax avoidance, evasion, repeated insolvency or facilitating avoidance or evasion.
Typically, HMRC would be able conceivably to issue a Joint Liability Notice (“JLN”) to a formally appointed director or company secretary but when a relevant company officer has not been registered as a Director at Companies House or recorded in the company’s statutory books as a Director or company secretary, a Joint Liability Notice can be issued if it is deemed that the individual was:
- substantially managing the affairs of the company; or
- someone in accordance with whose direction or instructions the directors were accustomed to act; or
- a shadow director of the company
Contents Of A Joint Liability Notice
The content of a Joint Liability Notice is as follows:
- specify the amount of the relevant tax liability if established or indicate that the amount will be specified in a further notice
- specify the company concerned
- detail the reasons for the issuing by HMRC of the Joint Liability Notice
- inform the recipient of the consequences of the JLN
- offer the individual a review of the decision to give the notice, and explain the effect of the right to review
- explain the effect of the right to appeal
Right To Review A Joint Liability Notice?
An individual who receives a Joint Liability Notice can request a Review of the notice issued by HMRC within 30 days of receiving it.
Right To Appeal A Joint Liability Notice
An individual who receives a Joint Liability Notice can Appeal to the First-Tier Tribunal within 30 days of receiving it or within 30 days of the conclusion of a Review undertaken by HMRC.
