The Sting In The Tail In The Finance Act 2020

• Published date: 17 May 2021
• Subject Matter: Finance and Banking, Tax, Insolvency/Bankruptcy/Re-structuring, Financial Services, Financial Restructuring, Insolvency/Bankruptcy, Income Tax
• Law Firm: RadcliffesLeBrasseur
• Author: Ms Sumaira Choudary

The sting in the tail in the Finance Act. Are the walls closing in on key stakeholders?

The Finance Act 2020 ("Act") came into force on 22 July 2020 bringing with it the re-introduction of the Crown Preference (See Changes to The Return of Crown Preference - RadcliffesLeBrasseur LLP for further information) and a series of tax measures. Anticipated for some time, certain of the changes introduced by the Act came as little surprise. Others, such as the scope of the new anti-avoidance laws, were less anticipated and notwithstanding having received modest attention, bring with them far reaching consequences.

Bearing in mind the punitive consequences of such anti-avoidance laws, it is important that they are properly considered, not only by those involved in the management of companies, limited liability partnerships ("LLPs") and unincorporated associations (excluding partnerships) (together referred to as "entities" and individually an "entity"), but also by those working within the wider restructuring industry. Such laws together with the re-introduction of the Crown Preference are likely to have considerable impact on restructuring planning in future.

Overview

Section 100 and Schedule 13 (Joint and Several Liability of Company Directors Etc) of the Act provide for an individual to be jointly and severally liable to HMRC for amounts payable to HMRC by an entity in certain circumstances involving insolvency or potential insolvency. Such individuals include directors, shadow directors, members, managers, shareholders and "participators" (including loan creditors).

Subject to the satisfaction of certain conditions, the Act grants HMRC the power to serve a joint liability notice ("JLN") to impose joint and several liability on an individual for the payment of a tax liability of an entity in the following general circumstances:

• repeated insolvency and non-payment cases
• tax avoidance and tax evasion cases; and
• cases involving penalty for facilitating avoidance or evasion.

The provisions of section 100 and Schedule 13 of the Act relating to tax liability do not have retrospective effect. Therefore, tax liability relating to the period ending before 22 July 2020 and any tax liability (other than one that relates to a period) arising from an event of default occurring before such date are not caught by the new anti-avoidance measures.

The following commentary is a summary of the qualifications and conditionality within Schedule 13 of the Act applicable to each of...