The text of Finance Bill 2019-20, published on 11 July and due to come into force in April 2020, contains some alarming new measures seeking to make directors (and others) liable for certain corporate tax debts.

If these provisions (buried under the bill's "Miscellaneous legislation" section) come into force, they will have a significant impact on directors, entrepreneurs, turnaround managers and investors and lenders who lend in a personal capacity.  

The legislation is aimed at 'individuals', which is undefined, but which most likely means people, such as directors and 'participators', so would not catch corporate investors or lenders.

The new provisions seek to impose liabilities in three situations:

1.  Tax avoidance and tax evasion cases

This seeks to make individual directors and participators liable if the debtor company has entered into tax avoidance or evasion, if those individuals somehow facilitated or benefitted from it.

It appears to include non-executive directors approving a tax strategy at a board meeting, even if they were not a beneficiary of the scheme. 

Given that HMRC wins approximately 80% of tax avoidance scheme challenges in court, this seems to be an attempt to deter directors from becoming involved in company tax strategies, even if they are strictly legal tax planning measures.

2.  Repeated insolvency and non-payment cases

This applies if two companies have entered a process (including members voluntary liquidations (MVLs)) in the last five years and at least one of those companies has a debt to HMRC that was more than £10,000 and more than 50% of the total debts owed.  

If a director or participator in one of the two companies during that five-year period becomes a director or participator in a new company carrying on a similar trade, that person can become personally liable for all taxes of the new company, as well as unpaid tax debts of the old companies. 

This rule will still appear to apply if the director or shareholder sold the insolvent companies five years ago, with no tax debt, and the new management ran them into the ground four years later. 

3.  Cases where a penalty is imposed for facilitating avoidance or evasion

This means a director or participator can be personally responsible if a debtor company is liable for a penalty for breaching certain tax legislation concerning the disclosure, promotion or enabling of tax avoidance schemes.  

This looks like an attempt by HMRC to stifle equity and debt funding to promoters of tax avoidance schemes. 

Its scope means that a director brought in to turnaround a business, who correctly notifies a tax avoidance scheme once he is appointed, could find himself personally liable for tax debts of a business he has been hired to save.

Conclusion

This appears to be a nuclear provision to deter 'normal' directors from countenancing entering into tax avoidance schemes and stifle debt and equity funding to scheme promoters. 

Tax evaders are akin to fraudsters and are unlikely to be concerned by such rules. 

It is amazing that HMRC believes it appropriate to make shareholders and lenders potentially liable when they have no control over the debtor company or its tax affairs.