Repeated Company Insolvencies: When Can HMRC Make a Director Personally Liable for Tax?
Trading through a limited company normally separates company debts from a director’s personal finances. However, HMRC can make an individual personally responsible for certain tax debts where the conditions for a joint liability notice are met.
HMRC updated its guidance on joint and several liability for repeated insolvency and non-payment in July 2026. While the underlying rules are not new, the updated guidance is a useful reminder of when directors and others connected with failed companies could face personal liability.
One set of rules applies where an individual has been connected with repeated company insolvencies and a new company continues the same or a similar business. Bretts has previously covered the wider use of joint and several personal liability notices. Here, we look specifically at the four conditions HMRC must establish in a repeated insolvency case.
What is a joint liability notice?
If HMRC issues a joint liability notice, the recipient can become jointly and severally liable for the tax covered by it. In practical terms, HMRC can pursue that individual for the full relevant amount rather than simply a share of the debt.
A previous liquidation does not automatically make a director personally liable. HMRC must be satisfied that all four statutory conditions are met.
The four conditions HMRC must establish
Condition A: two old companies within five years. The individual must have had a relevant connection with at least two companies that became subject to an insolvency procedure during the five years ending with the date of the joint liability notice and had a tax liability. For an old company, this includes being a director, shadow director or participator.
Condition B: a new company carries on the same or a similar trade. The new company must carry on, or have carried on, a trade or activity that is the same as or similar to that of at least two of the old companies.
Condition C: the individual is connected with the new company. This can include being a director, shadow director or participator, or being directly or indirectly involved in managing the new company.
Condition D: the unpaid tax passes both thresholds. The combined unpaid tax liabilities of the relevant old companies must exceed £10,000 and must also represent more than 50% of their total liabilities to unsecured creditors.
A simple example
Suppose a director has run two building companies that both enter liquidation within five years. Together they leave £18,000 owing to HMRC and £30,000 of total unsecured creditor liabilities. The HMRC debt represents 60% of the unsecured debt, so Condition D is met.
The director then becomes involved in a third company providing the same building services. If Conditions A, B and C are also satisfied, HMRC could have grounds to issue a joint liability notice. The figures alone are not enough. Every condition must be established.
What counts as the same or a similar business?
HMRC says a business can be similar without being identical. Providing the same services, using the same workforce or operating from the same premises may point towards similarity.
The opposite can also be true. HMRC gives an example of a recruitment consultant who later trades as an IT consultant. Some clients remain the same, but the service has changed enough that HMRC says the similarity condition is unlikely to be met.
Changing a company name or making small alterations to the offer will therefore not necessarily make the new business different. The actual activity carried on by the businesses is what matters.
Does this apply after every company failure?
No. HMRC recognises that most companies become insolvent because of genuine financial difficulties and describes these rules as targeted at repeated insolvency and non-payment.
Its guidance also says a connected person should not receive a notice under these provisions where they acted in good faith and had no material influence over the company’s affairs. A passive shareholder with no real involvement is one example. The rules can, however, extend beyond formally appointed directors.
How much could someone become personally liable for?
The exposure can go further than tax left behind by the old companies. A notice can cover their unpaid liabilities and tax already unpaid by the new company when the notice is issued.
It can also extend to tax liabilities arising in the new company during the five years beginning with the date of the notice, while the notice remains in effect. A director who assumes the risk is limited to historic debts could therefore significantly underestimate the amount at stake.
The fact that one of the old companies has since been dissolved does not necessarily remove the liability. HMRC can still pursue an individual for the relevant tax debts in certain circumstances.
The amount due may also be reduced where the individual has already paid certain penalties relating to the same tax liability.
What if HMRC issues a notice?
The recipient can ask HMRC to review the decision or appeal to the First-tier Tribunal. The normal deadline is 30 days from the date of the notice, although different deadlines can apply where HMRC has granted an extension or a review has already taken place.
An appeal against the joint liability notice cannot itself be used to challenge the existence or amount of the underlying company tax liability, so appropriate tax and legal advice should be taken quickly.
What should directors consider now?
A director who has already been involved with more than one insolvent company should consider three questions: were at least two companies insolvent within the last five years, did they leave significant HMRC liabilities, and is the director now involved with a company carrying on the same or a closely similar business?
If the current company is also struggling to pay HMRC or other creditors, those questions should be considered alongside the wider duties directors have when a company is facing insolvency. Accurate financial information, properly recorded decisions and early advice are particularly important where the position is deteriorating.
How Bretts Business Recovery can help
Repeated company insolvencies can create additional risk where HMRC debts remain unpaid and a director is now involved with another similar business. Early advice can help establish the current company’s financial position before tax arrears or creditor pressure become harder to manage.
Bretts Business Recovery can review the current company’s position alongside previous insolvencies, creditor balances and HMRC arrears. Where the business is no longer viable, a formal closure process such as a Creditors’ Voluntary Liquidation (CVL) may need to be considered.
Where there is still a viable business or value to protect, other options may be available. Bretts can explain the difference between administration and liquidation and help directors understand the most appropriate next steps.