The Finance Act 2020 and insolvency

The Finance Act 2020 introduced new provisions concerning tax in insolvency situations  in two respects. The first amends the Insolvency Act 1986 (and its equivalents in Scotland and Northern Ireland) to restore HM Revenue & Customs (HMRC) as a secondary preferential creditor in insolvency proceedings with effect from 1 December 2020


The second change is the introduction of new rules making directors, shadow directors and certain others jointly and severally liable for a company’s tax liabilities in insolvency situations.


HMRC has to issue a joint liability notice (JLN) to trigger the rules. Subject to numerous conditions, HMRC can issue a JLN in three broad cases:

  • Tax avoidance and tax evasion
  • Repeated insolvency and non-payment cases
  • Cases involving penalty for facilitating avoidance or evasion

The new regime is lengthy and complex. It is intentionally broadly drafted so as to act as a deterrent and to combat tax evasion