HMRC Changes The Lexicon

My thanks to a loyal reader who pointed me towards a small and quiet corner of the HMRC website that explains HMRC's powers to prevent deliberate non payment of PAYE.

As from 6 April 2012 "HM Revenue & Customs (HMRC) will be able to ask employers to pay a security where there is serious risk that they won’t pay over their PAYE tax deductions or Class 1 National Insurance contributions (NICs). "

The concept is valid when applied to criminals who withhold PAYE from employees pay packets, and who then run off and nick it without passing it onto HMRC.

However, within HMRC's explanatory notes (which try to reassure people that these new powers will not be misused) there comes HMRC's definition of Phoenixism:


"Where a business evades tax by becoming insolvent and then sets up a new company the next day to continue trading."

Reasonable?

Well not entirely, here is a more precise definition:

"In some cases the Liquidator is requested to sell the assets of the business to another party, including the former directors or shareholders. This is commonly known as a Phoenix."

Phoenixism, where the law is followed, is perfectly legal viz:


"The directors of the insolvent company will call an extraordinary general meeting and a meeting of creditors. An advertisement is placed in the London Gazette and creditors are written to with a request that they submit a claim for their debts. At the members meeting, the directors will report that the company is insolvent and will advise that the company should enter Liquidation voluntarily and pass a resolution to cease trading and appoint a Liquidator. At the subsequent creditors meeting, the directors place the statement of affairs before the creditors who then confirm the appointment of a Liquidator.

The Liquidator has four main tasks:

1. To realise the assets of the business
2. To adjudicate creditors' claims, where appropriate
3. To investigate and report on the conduct of directors
4. To make payments to creditors (eg HMRC) in order of priority."

However, HMRC by subtly redefining the meaning by linking it to evasion (which is illegal) are implying that it is illegal. In fact they also imply that "insolvency" is a deliberate attempt at evasion, which of course may be true in some cases but is most certainly not true in all cases of insolvency.

I wonder why no one has picked this up until now?


Tax does have to be taxing.

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