Fresh guidelines have been introduced by the Finance Act 2020 which will enable specific individuals with an association with a company that is likely to be an insolvency procedure (i.e. An insolvent company) will be collectively and individually responsible for specific tax liabilities of the insolvent company. HM Revenue and Customs (HMRC) according to the new guidelines can release a joint and several liability notice (JSLN) directly and indirectly to interim directors, directors, participants (majorly shareholders) and individuals, or those who participate in a company’s management. (This covers individuals that are directly connected with an insolvent company) in relation to specific tax liabilities of the company, if the HMRC seems to discover that the concerned parties have engaged in any of the insolvent company activities listed below:

Tax evasion engagement and arrangements as directed by the tax evasion regulations.

A consistent company’s insolvency and the development of new companies (Phoenixism) alongside a failure to pay tax liabilities or Cases that involve activities for the promotion of tax evasion or avoidance.

When the HMRC releases a JSLN, the insolvent company and the concerned parties would be collectively and individually responsible for the tax liabilities and penalties of the company that is as a result of any of the above-listed violations. In a situation where the insolvent company is defunct, the outstanding liabilities would be the responsibility of the parties involved.

The relevant connection an individual has is determined by which of the above-stated conditions that are applicable. In the first condition, (tax evasion agreement and tax avoidance conduct), a specific involvement must exist by the individual in the tax evasion and avoidance, which could include the promotion, execution, or benefiting from the agreement. In the second condition, (Phoenixism), an individual can be relatively connected and be collectively or individually responsible if the individual was an interim director, director, participant, or have involvement in the management of the concerned company in the past five years or a new company. In the third company (the punishment for promoting tax evasion and avoidance), an individual will be relatively associated with an insolvent company if the individual was an interim director, director, or participant during the implementation.

The decision of the JSLN can be appealed by the individual and the decision will be evaluated by the HMRC. The HRMC’s estimation of the tax liability can also be disputed by individuals, even when the concerned company is defunct.

HMRC has advocated the extensive new guidelines as it sought to contend with the few taxpayers who unfairly and artificially seek to limit their tax expenses through the abuse of companies’ bankruptcy. HMRC indicated that it will strive to implement new guidelines by supervising cases of bankruptcy and through its interaction with taxpayers and participants that are impacted by the new guidelines.

Clients are advised to seek legal advice if they plan to perform restructuring or company reorganization through bankruptcy guidelines and effectively manage any incurred tax liabilities.

Fraud during the coronavirus epidemic.

The Finance Act 2020 has empowered the HMRC to perform an investigation on company directors, interim directors, and administrators who are believed to misuse the position of the Coronavirus Job Retention Scheme (CJRS) and to recuperate the funds allocated under the CJRS where the employer is not qualified. The Finance Act 2020 has empowered the HMRC to officially make the employer refund 100% of the received amount after a wrong claim has been made for CJRS. Additionally, a maximum penalty of 30% of the CJRS that was wrongly claimed exists, together with 100% in a situation where the misuse was intentional or hidden.

The official government statistics stated that the CJRS has supported about 9.6 million jobs, estimating about £34.7 billion as of August. The government of the UK has rapidly responded to rising issues that the CJRS scheme is vulnerable to fraudulent claims and the paid out funds were not used to settle employees.

A waiting period of 90 days has been implemented by the Finance Act 2020 starting from 22 July for employers to inform the HRMC in a situation where the employers are not eligible for the furlough payments received. Employers are advised to inform the HMRC concerning any wrong CJRS claims in order to avoid the penalty that is based on the intentional or hidden violation.

A press released issued by the HMRC on the 9th of July confirmed that they have apprehended the first culprit under the new guidelines as part of the investigation carried out on an alleged £495,000. The company’s funds were frozen and computers were seized. Under the Fraud Act 2006, furlough fraud is a criminal act. But the Finance Act 2020 has included some civil punishments where the payment of the CJRS was not utilized for paying the wages of employees, National Insurance Contributions, (NIC), Pay As You Earn (PAYE), or pension funds.

There have been situations where furlough employees have been informed to perform tasks while receiving the CJRS support which has caused these workers to anonymously report this CJRS violation to the HMRC. This was confirmed by the HMRC on the 7th of August where it has received about 7,791 reports of possible CJRS fraud and still urges employees to provide reports when affected. Employers should remember this in a situation where there is no longer a cordial relationship between the employer and the employee as a result of the current situation.

Although the HMRC is authorized to carry out investigations, they reserve the right to transfer this case to the Crown Prosecution Service that will implement the final verdict. The announcement from HMRC on the first arrest shows the level of seriousness that the HMRC is safeguarding taxpayer’s funds with relation to the CJRS which its primary purpose is to provide support to businesses during the coronavirus pandemic.

Directors have a legal obligation of care and skill to perform their duties for the good of the company. And these duties can be violated if the HMRC discovers that the CJRS funds have been abused. Therefore, it is important for directors to be conscious of their legal obligations of carrying out tasks for the good of the company. Schedule 15 within the Finance Act 2020 describes that the officials within a company will be held responsible, collectively, and individually for punishments and the refusal to inform the HMRC. This could be applicable to every director, even directors that are not directly involved with the CJRS payment claims will be individually held responsible for the refund of the monies to HMRC.

We advise directors to verify if any CJRS claims have been submitted on account of any company that they are officers to guarantee that these claims were made in line with the guidelines and certify that the funds received were used accordingly.

Insolvency procedure is a company that is subject to liquidation or administration or a company that would be probably subjected to liquidation or administration.

Tax problems Fajardo And Associates can help

Tax Resolution Services Fajardo And Associates can help