Source · Select Committees · Public Accounts Committee
Recommendation 27
27
Accepted
Insolvency Service disqualifies few directors for phoenixism despite significant tax debt losses
Recommendation
The Insolvency Service disqualified 6,274 directors over the period 2018–19 to 2023–24, but only seven of these were for phoenixism.83 HMRC estimates that phoenixism accounted for 15% of its tax debt losses in 2022–23, which equates to at least £500 million.84 The Insolvency Service told us that it is not difficult for it to disqualify directors where it finds evidence of unfitness. It explained that there is no statutory offence for phoenixism, but it can be an aggregating factor in its determination of the seriousness of director misconduct.85 The Service explained that the seven disqualifications are cases where there was no more serious offence for it to pursue other than phoenixism.86 The Insolvency Service told us that the low number of disqualifications for purely phoenixism is not a good indication of the work it does in relation to protecting tax revenue, and said that it has increased the number of disqualifications last year by 30% from the previous year, as well as doubling the average length of disqualification to around 10 years.87 The Insolvency Service could not tell us definitively how much of its casework involves phoenixism, but estimated around 10%.88 It told us that it wants to increase its disqualification activity, and go further in publicising high– profile cases, but it could not put a figure on what a good response would look like.89 81 Qq 87 – 88 82 Q 89 83 C&AG’s Report, para 21 84 C&AG’s Report, para 1.12 85 Q 80 86 Q 84 87 Q 80 88 Q 81 89 Qq 82–83, Q86 18
Government Response Summary
HMRC and the Insolvency Service will write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules including developing a shared definition of phoenixism.
Government Response
Accepted
HM Government
Accepted
6. PAC recommendation: HMRC and the Insolvency Service should write to the Committee within six months with a plan to bear down on tax evaders and rogue directors who flout insolvency rules. This plan should include details of: • how both organisations will increase prosecutions and disqualifications. • how they will better publicise cases of successful prosecutions and disqualifications; • how they will report on their performance and ensure they are measuring the deterrent effect of their responsive work. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2025 6.2 The government announced at Autumn Budget 2024 the commitment of HMRC, Companies House and Insolvency Service to increase their collaboration to tackle rogue directors and phoenixism. This includes developing a shared definition of phoenixism. The Exchequer Secretary to the Treasury, provided an update on progress in a speech on 11 March 2025. Exchequer Secretary to the Treasury: 20 years of HMRC - reflections and looking ahead - GOV.UK. 6.3 HMRC, Companies House and Insolvency Service have agreed a joint implementation plan for measures to tackle rogue directors who abuse the insolvency regime to evade tax by closing down vulnerabilities in company registrations and dissolutions; increasing the compliance impact achieved by HMRC; and increasing the flow of investigations into unfit directors by the Insolvency Service. 6.4 HMRC will continue to develop its estimate of tax losses due to phoenixism and the measures of the deterrent effect of the response. 6.5 The government will write to the Committee within 6 months to set out its plan.