JSL Notices - Are HMRC becoming more aggressive when it comes to Tax avoidance and Evasion?Posted: Sep 24, 2024

There was a relatively large rise in the number of Joint and Several Liability (JSL) Notices in the last year.

The JSL Notice is usually a rather rare beast for HMRC to use because it is a somewhat complex and difficult action to take. However, HMRC now seems to be increasingly more inclined to utilise them, which could signal a real change in attitude when it comes to insolvencies with significant tax debt.

Quick Recap – What is a Joint and Several Liability Notice

In short, it is a way for HMRC to hold individuals personally liable for a tax debt. Usually, liability for company debts resides with the limited company as a legal entity in its own right, rather than the individual directors. In fact, this is often one of the drivers behind choosing and maintaining limited status for a business. Limited status is enshrined in law and what is known as ‘lifting the corporate veil’ is relatively rare. JSL notices are rarer still because they require some well-documented evidence and an amount of legal certainty to make them viable.

To meet the requirements of a JSL Notice, His Majesties Revenue and Customs (HMRC) have 5 conditions to fulfil. These are as follows (I have left a link in each one that more fully explains the condition because they are far too complex to cover completely in one article)

the company has entered into tax avoidance arrangements or has engaged in tax evasive conduct (Condition A)

the company is subject to an insolvency procedure, or there is a serious possibility of it becoming subject to one (Condition B)

the individual was responsible for the company’s conduct which they took part in, facilitated or assisted or from which they knowingly benefited (Condition C)

there is, or is likely to be, a tax liability relating to the tax-avoidance arrangements or to the tax-evasive conduct (Condition D)

there is a serious possibility some or all of this tax liability will not be paid (Condition E)

As you can see, the requirements are strict and, to make things even more difficult, HMRC must be satisfied that all 5 conditions have been met before they proceed with a JSL Notice.

So, if that is the case why does it matter that HMRC has issued a few more than usual in the last year? What does it signify? Well, to answer that, let’s start with what a successful JSL Notice means.

What Could the Result of JSL Notice be for a Director?

Essentially, a successful application of a Joint and Several Liability Notice would mean that HMRC are able to lift the corporate veil and pursue individual or multiple directors for the money owed for tax liabilities. That could mean a loss of assets, wealth and property and even potential bankruptcy for those involved.

A JSL Notice is a severe penalty for any director to face and they may well only go forward when some very clear circumstances present themselves, but they are life changing for the directors involved.

How big is the Change and What Does it Mean?

In one respect the overall number of JSL Notices is actually quite a small one. As a percentage and a revenue count, however, it is a huge lift of 225% with around £15 million being sought in liabilities compared to just 2.3 million the year before. So, there may be only 52 notices issued overall, but it is a staggering increase from the 16 in the previous year. The average amount per case for these notices must be in the region of £290,000 in unpaid tax. JSLs may be small in number, but they are high in value.

With all that said, as with many previous shifts in HMRC tactics, it could well be a signifier of bigger things happening behind the scenes. A sort of pilot fish warning of something more important approaching. In this case, the increase could be linked to HMRCs commitment to clamping down on tax evasion and avoidance and their wider agenda to collect taxes owed by insolvent businesses.

The growth in JSL Notices is clearly significant and if it continues, then this trend is especially concerning for businesses facing financial difficulties. If insolvency is a possibility, and tax liabilities are still unresolved, directors and other parties could find themselves personally liable. Therefore, it is crucial to understand what Joint and Several Liability Notices entail, the conditions that trigger them, and why seeking advice from insolvency practitioners at an early stage is essential.

HMRC are Serious About Debts

While it has never been a good idea to avoid your debt to HMRC, their growing commitment to recovery has made it even more important to stay on top of things. As we often say, HRMC can be a quiet creditor. It is easy to push the debt, and it can seem less urgent than paying your suppliers or staff. However, they are coming, and they will want you to pay. The increase in the use of JSL Notices seems to be just a part of the commitment HMRC have made to reducing the difference between taxes owed and taxes paid, known as the tax gap. In 2021 – 22, according to the Office for Budget Responsibility, the tax gap stood at approximately £35.8 billion. The money potentially being recovered via JSL Notices seems rather small beer at just £15m but that is perhaps the most telling point here. It could well be a huge red flag warning that HMRC is prepared to do what is needed to reclaim any and all money owed and reduce the deficit.

Directors should be wary if they are expecting insolvency. While a JSL Notice will only affect those who have knowingly avoided or evaded their tax responsibilities, any insolvency with a tax element is likely to result in HMRC being far more active and possibly quite aggressive in its actions.

Consult us, and consult us early. The sooner we start to prepare, the better your response will be when insolvency happens. There is a lot of information on our website, and check out our survival guides, but most importantly, call us or book your free consultation, if you are worried about insolvency.