HMRC phoenixism concerns often arise where a company has failed owing tax and a new or connected business is carrying on the same or a similar trade. That does not automatically mean that a director has acted wrongly. Many companies enter insolvency because of genuine trading pressure, and a new business may be part of a legitimate rescue or restructuring.
The risk increases where there is a pattern of repeated insolvency, unpaid VAT, PAYE, National Insurance contributions or corporation tax, continuity of customers or assets, or evidence that tax liabilities have been left behind while the same business continues. In those cases, HMRC may consider personal tax recovery powers, security requirements and, in some cases, referral issues linked to director disqualification.
This guide explains how HMRC looks at phoenixism, when a joint and several liability notice may be issued, how HMRC security notices fit into the picture, and what evidence can help directors respond. For wider name reuse and personal liability issues, see our guide to reusing a company name after liquidation.
At a glance
- Main legal risk. HMRC may seek to make directors or connected individuals personally responsible for certain tax liabilities where repeated insolvency and non-payment conditions are met.
- Key legislation. Schedule 13 Finance Act 2020, alongside wider HMRC tax recovery, security and director disqualification powers.
- Common triggers. Repeated insolvent companies, unpaid tax, same or similar trade, connected persons, same assets, staff, customers or premises.
- Director response. Review the factual pattern, preserve records, assess whether the statutory conditions are met, and respond carefully to HMRC and Insolvency Service enquiries.
What does the same or similar business mean?
The same or similar business test is fact-sensitive. HMRC guidance explains that the new company does not need to be exactly the same as the old companies. It may be enough if the new trade resembles the old business in appearance and character, for example because it provides the same services or uses the old workforce, assets or premises.
In practice, HMRC may look at the customer base, website, branding, staff, premises, equipment, contracts, suppliers and management control. Similar issues also arise when assessing phoenix companies and director disqualification, although the legal tests are not identical.
A meaningful change in trade may reduce the risk, but it will depend on the evidence. A director who has moved from one business model to another should keep records showing the commercial reason for the change and the extent to which the new company is genuinely different.
Who can receive a joint and several liability notice?
A joint and several liability notice (or JSLN) is not limited to a formally appointed director. HMRC guidance refers to directors, shadow directors and certain other individuals connected to a company. In repeated insolvency cases, the concept of relevant connection can include a director, shadow director or participator, and in relation to the new company it can also include direct or indirect involvement in management.
This is important where a person has resigned as a director but continues to control decisions, manage staff, deal with suppliers or direct the new company’s affairs. Similar factual questions can arise where a person is accused of acting as a de facto or shadow director, or of being involved in management while subject to director disqualification.
What happens after HMRC gives a JSLN?
A notice should explain the companies involved, the reasons HMRC considers the conditions are met, the amounts for which the individual is said to be liable, and the right to a review or appeal. In a repeated insolvency case, the effect can extend beyond old company tax debts. HMRC guidance states that the individual may also be jointly and severally liable for certain unpaid or future tax liabilities of the new company while the notice remains in force.
- The financial exposure can therefore be significant.
- Directors should not treat the notice as a general debt collection letter.
- It is a statutory mechanism that needs a careful legal and factual response.
Where HMRC is already taking steps such as a winding up petition, the director should consider both the company’s position and their own personal exposure.
Can a director challenge a joint and several liability notice?
Yes. HMRC guidance confirms that there are safeguards, including review and appeal rights.
- An individual who receives a JSLN may be offered a review by HMRC and may be able to appeal to the First-tier Tribunal.
- Time limits are important and the notice should be reviewed promptly.
The grounds of challenge may include whether the statutory conditions were met, whether the notice is necessary for the protection of the revenue, and whether the amount stated is correct. The director may also need to consider whether the underlying company liability can be challenged or whether an appeal in relation to that liability is available.
The response should be evidence-led. It is rarely enough to say that the insolvency was unfortunate. HM Revenue & Customs will usually expect documents explaining the trading history, tax position, asset transfers, management structure and the commercial reason for the new company.
How do HMRC security notices fit into phoenixism risk?
HMRC VAT security notices are separate from JSLNs, but they often appear in the same risk landscape. HMRC securities guidance says that a security is money HMRC requires a business to provide because HMRC believes it may not pay VAT, environmental taxes or PAYE and National Insurance contributions. HMRC says security is sought only where there is a serious risk to the revenue and should be used reasonably and proportionately.
The same HMRC guidance identifies phoenixism, described as repeated insolvency and new company creation, as one example of high-risk behaviour. A Notice of Requirement may therefore become a practical issue for a new company where HMRC is concerned about the tax history of earlier connected companies.
A security notice can affect cash flow immediately. Directors should take advice on the company’s ability to comply, the basis of HMRC’s decision, and whether there are grounds for review or appeal. FWJ also advises directors on wider HMRC claims against directors and tax enforcement risk.
Can HMRC phoenixism lead to director disqualification?
A JSLN is not the same as director disqualification. It is a tax recovery mechanism. However, the same conduct that attracts HMRC scrutiny may also be relevant to an Insolvency Service investigation into whether a director’s conduct was unfit.
HMRC internal guidance on director disqualification misconduct refers to
- non-payment of taxes while paying other creditors,
- preferential treatment,
- misuse of VAT or PAYE funds,
- repeated insolvencies,
- contrived insolvencies,
- trading with knowledge of insolvency; and
- failure to comply with Time to Pay arrangements.
These are all fact-sensitive issues, not automatic findings of misconduct.
Where HMRC concerns sit alongside a failed company, directors should consider the wider Company Directors Disqualification Act 1986 framework and whether an Insolvency Service questionnaire or section 16 letter may follow.
What evidence helps directors respond to HMRC phoenixism allegations?
The best evidence will depend on the facts, but directors should generally preserve material showing why the old companies failed, what steps were taken to deal with HMRC, how assets were valued, how any new company was funded, and who made management decisions. Records of Time to Pay discussions, tax returns, VAT and PAYE filings, board minutes, accountant advice, insolvency practitioner advice and asset sale documents may all be important.
Directors should also gather evidence showing any legitimate commercial purpose behind the new company. This may include
- changes to the business model,
- new investment,
- different customers,
- different premises,
- new management controls,
- improved governance; and
- steps taken to keep tax affairs current.
If a new company has used a similar trading name, the director should also review the prohibited name rules under section 216 Insolvency Act 1986 because that risk is separate from HMRC’s JSLN powers.
What should directors do if HMRC alleges phoenixism?
Directors should avoid informal or incomplete responses. HMRC phoenixism allegations usually require a structured review of the companies involved, the tax debts, insolvency dates, creditor position, trading continuity and the director’s role in each business.
The first step is to understand which power HMRC is using.
- A request for information,
- a security requirement,
- a JSLN,
- a winding up petition; and
- a referral connected to director conduct.
are different stages and should be handled differently
It is also important to consider the director’s personal position separately from the company’s position. Advice to the company may not answer whether a director is personally exposed to a JSLN, section 217 liability, director disqualification or claims brought by a liquidator.
How FWJ can help
FWJ advises company directors, shareholders and business owners on HMRC phoenixism concerns, joint and several liability notices, security requirements, prohibited name issues and director disqualification risk. We can review HMRC correspondence, assess whether the statutory conditions appear to be met, help gather evidence and advise on the most appropriate response.
We also advise on connected insolvency issues, including company liquidation, prohibited name risk, asset transfers, liquidator claims and HMRC claims against directors. The right response will depend on the facts, but early legal analysis can help directors understand the available options and avoid avoidable personal exposure.
