Source · Select Committees · Public Accounts Committee
Recommendation 24
24
The pandemic has created a risk that some rogue firms have been able to embezzle...
Conclusion
The pandemic has created a risk that some rogue firms have been able to embezzle large sums of money during the pandemic. There is a particular risk from so-called ‘phoenix’ companies, referring to the practice of individuals continuing the same trade after winding up a company, usually to avoid paying debts.58 The pandemic has presented companies with the opportunity to borrow more money from government through schemes such as Bounce Back Loans or Coronavirus Business Interruption Loans.59 And the temporary restrictions on insolvency action means that companies are able to continue building up debt for a longer period of time before action is taken. This means that a phoenix company might build up far larger debts than it would have been able to prior to the pandemic, before its directors liquidate the company.60
Government Response
Not Addressed
HM Government
Not Addressed
3: PAC conclusion: Rogue companies are exploiting the pandemic to profit at the expense of taxpayers. 3a: PAC recommendation: Alongside the Treasury Minute response to this report, HMRC should provide the Committee with a summary of substantive work it has undertaken to: • Estimate the number of rogue companies at risk of defaulting and the value of the tax at risk. • Ensure commensurate resources are in place to prevent such fraudulent activity. 3.1 The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism. This is a complex piece of work because there are lots of factors that influence insolvency and determining if the insolvency is contrived or legitimate is difficult. This is expected by the end of May 2022. 3.3 This will inform improvements in the department’s approach to identifying and mitigating this risk in the future, as well as aid in resourcing decisions. HMRC is fully committed to using the full range of powers at its disposal to tackle those that set out to abuse the system in this way. 3.4 HMRC is also improving its IT systems specifically aimed at managing insolvency compliance risks, including phoenixism, which will provide increased data in the future. The first release of this system is scheduled for May 2022, with further releases planned. 3.5 To strengthen HMRC’s ability to tackle phoenixism, Schedule 13 and Schedule 16 of Finance Act 2020 provide enhanced powers to hold company directors liable for some debts owed to HMRC by their companies in specified circumstances. These include where there is deliberate behaviour and there has been avoidance / evasion or repeated insolvency. Schedule 16 relates specifically to HMRC Covid Schemes, where the department are recovering sums owed in respect of incorrect claims.