Pheonixism abuse must be extinguished
HMRC must do more to combat ‘Phoenixism’ abuse, say leading audit, tax and business advisory firm, Blick Rothenberg.
Fiona Fernie, a partner at the firm, said: “Phoenixism involves the winding up of a company and the formation of a new company, often controlled by the same individuals to continue essentially the same business. Although sometimes legitimate, the practice can be used to deliberately avoid tax liabilities and other debts. Some UK companies are Phoenixed multiple times, each time owing millions to HMRC and creditors. HMRC must do more to extinguish this abusive practice.”
She added: “Losses to the Exchequer from Phoenixism were approximately £836m in 2022/23 – 45% higher than estimated previously. While there is no quantitative breakdown between the losses due to legitimate scenarios as against those that were abusive, given that the practice is common amongst promoters of tax avoidance schemes it is reasonable to suppose that a significant proportion is attributable to abuse.”
Fiona said: “To tackle this, HMRC needs to make greater use of personal liability notices, (i.e. holding the directors accountable rather than just the companies), impose more director disqualifications and prosecute repeat offenders. Otherwise, tax evaders Pheonix their companies again and again unless they are properly held to account by fines, penalties or even jail time.”
She added: “When used to perpetuate marketed tax avoidance schemes, Phoenix structures are a hugely powerful shield against regulatory intervention. The problem becomes particularly acute where Phoenix structures are used to promote or operate marketed tax avoidance schemes, allowing promoters to avoid shutdowns, penalties, and injunctions by repeatedly re-forming under new corporate shells. This is sometimes also known as ‘shape-shifting’.”
Fiona said: “Despite the publicity around marketed avoidance schemes, there are still promoters out there pedalling such arrangements, both new and old. Not only does this cost the Exchequer millions of pounds, it places many who undertook the schemes, in the mistaken belief that they were legitimate, in financial and emotional distress.”
She added: “HMRC has strengthened its tools, including the Targeted Anti Avoidance Rule (TAAR), upfront deposits, criminal enforcement, and a ‘multi agency’ strategy which involves coordinating with Companies House and the Insolvency Service to detect Phoenixism. But they clearly need to turn up the heat. Just seven directors were disqualified for abusive Phoenixism between 2018–19 and 2023–24 whereas in total 6,274 directors were disqualified in those years.”
Fiona said: “Doing more to tackle Phoenixism will help close the tax gap and stop the ongoing use of the practice to assist marketed tax-avoidance promoters in frustrating HMRC’s attempts to impose penalties, apply Promoters of Tax Avoidance Schemes (POTAS) monitoring, enforce Disclosure of Tax Avoidance Schemes (DOTAS) obligations, and restrain the activity of promoters through the courts.”