Source · Select Committees · Public Accounts Committee
Recommendation 26
26
HMRC told us it is developing a strategy to combat phoenix companies and is beginning...
Conclusion
HMRC told us it is developing a strategy to combat phoenix companies and is beginning to use new powers alongside existing approaches to identify, and bring sanctions against, individuals involved in this practice.63 The key tools it uses include: being able to attach company debts to the individuals who served as directors; referring directors to the Insolvency Service for potential disqualification; and requiring financial securities up front from new businesses that are created as the successor of an old business.64 HMRC said it is keeping track of individuals who are potentially involved in phoenix activity (as indicated by their moving from company to company) and that this includes efforts to identify and track the ‘controlling mind’, not just the named officers, of the company.65 It told us it is identifying the insolvency practitioners that phoenix companies prefer to use, and replacing them with more stringent practitioners.66
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.