HMRC now has significant powers under Schedule 13 of the Finance Act 2020 to make directors, shadow directors and LLP members personally liable for certain company tax debts where insolvency is involved, or likely. These powers are designed to stop individuals from using insolvency to avoid paying tax.
It should be noted that even in a limited company or LLP, personal assets can be pursued by means of a Joint and Several Liability (JSL) Notice.
HMRC can recover the full amount from any one individual if named in the notice. HMRC does not have to apportion the debt.
When can HMRC issue a JSL Notice?
A notice can be issued in three scenarios:
- Tax avoidance or tax evasion
- Repeated insolvency and non‑payment (e.g., “phoenixing” patterns)
- Penalties for facilitating avoidance or evasion
For avoidance/ evasion cases, HMRC must prove all five statutory conditions:
The company has entered into tax‑avoidance arrangements or engaged in tax‑evasive conduct.
- Insolvency or a serious possibility
The company is subject to an insolvency procedure, or there is a serious possibility of it becoming subject to one.
The individual:
- was responsible (alone or with others) for the avoidance/evasion, or
- participated in, assisted with, or facilitated the arrangements/conduct, or
- knowingly benefited from it
This applies to directors, shadow directors, participators and those involved in management.
- Tax liability exists or is likely
There is, or is likely to be, a tax liability relating to the arrangements or conduct.
HMRC may issue a notice even before the exact amount is established.
- Liability will not be paid
There is a serious possibility that some or all of the tax liability will not be paid.
This can be the case when:
- The company engaged in avoidance/evasion
- There is a serious possibility of insolvency
- The individual was responsible, assisted, facilitated, or knowingly benefited
- The tax is likely to go unpaid
For repeated insolvency and non-payment (phoenix-type cases), HMRC must be satisfied that:
- In the last five years, the individual had a relevant connection to at least two companies that were subject to insolvency with unpaid tax liabilities
- A new company is carrying on the same or similar business as the old insolvent companies
- The individual has a relevant connection to the new company
- The old companies’ unpaid tax must include amounts over £10,000 and representing more than 50 per cent of their unsecured liabilities.
HMRC considers that the pattern shows repeated non‑payment of tax through insolvency (i.e., phoenixing behaviour).
Shadow directors
A shadow director is ‘someone who has not been formally appointed as a director but in accordance with whose directions or instructions the directors of a company are accustomed to act’.
If your influence guides board decisions, you may be treated as a director and therefore personally liable under a JSL Notice.
Participated in – participator
‘A participator is any person having a share or interest in the capital or income of the company.’
Safeguards still exist
Directors and LLP members have structured protections:
- HMRC can issue a notice only via a trained “authorised officer”
- HMRC must withdraw a notice if statutory conditions were not met
- You can request a review and/or appeal to the First‑tier Tribunal
What boards should do now
- Ensure robust oversight of tax strategy and filings
- Review patterns of insolvency within any group or prior entities
- Identify anyone who might be acting as a shadow director
- Document decision‑making and professional advice
- Escalate concerns immediately if solvency becomes uncertain
FAQ for Directors
Can this override limited liability?
Yes, if conditions are met, HMRC can pursue individuals.
Are LLP members included?
Yes. LLPs are within the definition of “company.”
Can HMRC act without actual insolvency?
Yes. A serious possibility of insolvency would qualify.
To avoid a Joint and Several Liability Notice, directors and LLP members must ensure that their company does not enter the categories that trigger HMRC action, namely:
- Tax avoidance/ evasion,
- Repeated insolvency with unpaid tax,
- Behaviour that facilitates tax avoidance or evasion.
This means in practice:
- Ensuring all tax obligations are met on time, with accurate returns and full disclosure, so the business cannot be seen as engaging in avoidance or evasion
- Monitor financial health closely and act early if insolvency risks arise, because HMRC can issue a notice based on a “serious possibility” of insolvency
- Avoid repeated corporate failures with unpaid tax. HMRC targets patterns of insolvency that involve unpaid tax
- Maintain strong governance, ensuring no individual, including unappointed influencers (shadow directors), drives conduct that could be interpreted as avoidance or evasion
- Document decisions and seek advice early during financial stress, showing responsible oversight and engagement
By staying fully compliant, acting early when financial pressures emerge, and maintaining tight governance, directors and LLP members can keep HMRC from viewing their actions as abusive and sharply cut the risk of facing the personal financial exposure that comes with a Joint and Several Liability Notice.
Our specialist team can support you with compliance awareness so that you do not get caught out. Contact John Dyne today for help.