Joint and Several Liability Notices
Schedule 13 of the Finance Act 2020 (the “FA 2020”) introduced measures that allow HMRC to give joint and several liability notices (“JSLN”) to company directors, shadow directors and members of LLPs in certain circumstances. Although the FA 2020 came into force on 22 July 2020, HMRC only recently published a guidance note about these new powers.
JSLNs provide HMRC with a power to recover from individuals taxes that might otherwise not be paid by a corporate taxpayer.
When does it apply?
There are three cases in which these provisions apply.
(1) Tax avoidance and tax evasion cases
The first case is when a company has entered into tax avoidance arrangements or has engaged in tax evasive conduct. Paragraph 6 establishes what comprises that type of arrangement, e.g. one for which a notice of final decision has been given under the GAAR legislation.
The conditions are: (1) that the company is subject or likely to be subject to an insolvency procedure; (2) that the individual was responsible for the company’s conduct or benefited from it; (3) that there is, or is likely to be, a tax liability related to the conduct, and (4) that there is a serious risk that the tax liability, or part of it, will not be paid.
(2) Repeated insolvency and non-payment cases
The second case is related to repeated insolvency and non-payment. It is aimed at those who set up companies that do not pay their tax liabilities – becoming insolvent after some time – and “replace” them by setting up a new company that carries on the same business.
The conditions are: (1) that during the last five years there have been two or more old companies connected to an individual, each of which became insolvent and had a tax liability; (2) that a new company connected to the individual has been carrying on a similar business to the old ones, and (3) that the old companies have a tax liability of both more than (a) £10,000 and (b) 50% of the total amount of those companies’ liabilities to their unsecured creditors.
(3) Penalties for facilitating tax avoidance or evasion
The third case is where a penalty for facilitating tax avoidance or evasion has been issued.
The conditions are: (1) that the company is subject or likely to be subject to an insolvency procedure; (2) that the individual was a director or shadow director of the company or a participator in it at the relevant time, and (3) that there is a serious risk that the penalty, or part of it, will not be paid.
For tax avoidance and evasion cases, and for repeated insolvency and non-payment cases, Schedule 13 of the FA 2020 only applies to liabilities relating to any period that terminates on or after 22 July 2020. If the period started before that date, the legislation applies to the entire period. For penalties for facilitating tax avoidance or evasion, it applies only to defaults and events occurring on or after the same date.
Are there any safeguards?
Yes, Schedule 13 of the FA 2020 does contain safeguards:
- Important decisions must be taken by a properly qualified member of staff known as an “authorised officer”.
- HMRC must withdraw a JSLN given to an individual if any condition was not met when giving the notice.
- HMRC must also withdraw a JSLN given to an individual if it is not necessary for the protection of the revenue that the JSLN continues to have effect.
- HMRC must offer a review of its decision to an individual who has been given a JSLN, provided the tax liability has been established. The individual has 30 days to accept the offer.
- An individual has the right to appeal against a JSLN to the First-tier Tribunal within 30 days from the date shown on the JSLN, or from the date of HRMC’s notice informing the individual of the outcome of the review mentioned in the previous point.
- An individual has the right to take full part in the appeal hearing or to continue the appeal if the company is unable or unwilling to do so, provided the individual was given a JSLN and the company is subject to an insolvency procedure.
SHORT CASE REPORT FTT DECISION – ‘MTIC’ FRAUD – KITTEL TEST PTGI International Carrier Service Limited v. HMRC  UKFTT 20 (TC)
- A so-called “MTIC case”, in which HMRC alleged knowledge or means of knowledge of fraud. The taxpayer, PTGI, denied those states of knowledge. After a relatively lengthy trial, the Tribunal allowed the appeal of PTGI.
- The decision represents a good reminder that HMRC’s “MTIC” decision-making mould is not a “one size fits all”, unbeatable formula at the Tribunal. The Tribunal will robustly analyse HMRC’s (usually) inference-led allegations.
HMRC consultation on the OECD mandatory disclosure rules
HMRC has published a consultation on draft regulations to implement the Organisation for Economic Cooperation and Development (OECD) rules on mandatory disclosure of certain avoidance arrangements. Helen McGhee and Nahuel Acevedo-Peña explain the background to the new rules and their implications.
Post-Prudential: Decision released by the FTT
On 8 December 2021, judgment in the Post Prudential Group Litigation was handed down by the First-tier Tribunal (Tax Chamber) (“FTT”). These were appeals and applications for closure by approximately 200 taxpayers, who had made a variety of claims seeking repayment of unlawful DV tax imposed on dividends received from foreign portfolio holdings. The FTT considered the validity of these various statutory claims following decisions in test cases in the CFC & Dividend GLO, namely Claimants in Class 8 of the CFC and Dividend Group Litigation v Revenue and Customs Commissioners  EWHC 338 (Ch),  1 WLR 5097 (“Class 8”) and Prudential Assurance Co Ltd v HMRC  UKSC 39;  AC 929 (“Prudential SC”).
S&S Consulting Services (UK) Ltd v HMRC: Can a company be re-registered for VAT pending appeal?
On 26 November 2021, the High Court of Justice issued its judgment in S&S Consulting Services (UK) Ltd, R (On the Application Of) v HM Revenue and Customs  EWHC 3174. The case concerned the issue of availability of injunctive relief in the context of VAT deregistration appeals in the First-tier Tribunal (“FTT"). S&S also made an application for judicial review of HMRC’s decision to deregister it for VAT, which at the time of the hearing, had not yet been considered on the papers.
HMRC cancelled S&S’s VAT registration because it concluded that the company had been principally or solely registered to abuse the VAT system by facilitating VAT fraud. S&S denied any wrongdoing and claimed that it might become insolvent before the hearing of its appeal as a result of the deregistration.
It was also common ground that although S&S had lodged an appeal to the FTT, the FTT had no power to require HMRC to re-register S&S by way of interim relief pending the outcome of the appeal. S&S made an application to the High Court for relief.
Held: Application rejected.
VAT De-registration: the CJEU decision in the Promexor case
On 18 November 2021, the Court of Justice of the European Union (the “CJEU”) delivered its judgment in Case C-385/20 (Promexor Trade SRL v Directia Generala a Finantelor Publice Cluj – Administratia Judeteana a Finantelor Publice Bihor). Promexor is a Romanian company whose VAT number was revoked by the local tax authorities following a period of six months in which its VAT returns did not record any transactions subject to VAT. Under Romanian legislation, a company whose VAT number has been revoked could re-register and retroactively deduct input VAT for the period when it was not registered. However, in this case, Promexor was prevented from doing so because its director was also a shareholder of a company that was going through insolvency proceedings.