Directors' Personal Liability for Company Tax and Phoenixing

A limited company is a separate legal person. Its corporation tax, VAT and PAYE are its own debts, and as a starting point HMRC cannot send the bill to its directors or shareholders just because the company cannot pay. But Parliament has given HMRC several ways to make individuals pay a company’s tax or penalties, and most are aimed at the same pattern: a company that fails owing tax, sometimes more than once, while the people behind it carry on. This guide explains each one, who it can reach, and how a notice can be challenged.

We are accountants, and we deal with the tax side of these notices. Insolvency and company-law questions, such as re-using a company name or director disqualification, need a solicitor or a licensed insolvency practitioner.

Is a director personally liable for company tax?

Not by default. A director who has run a company properly does not become liable for its tax because it fails, and nor does a shareholder. Personal liability arises only where a specific rule allows it:

Route	What can pass to an individual	Who it can reach	Time to challenge
Joint liability notice (Finance Act 2020, Schedule 13)	The company’s tax, including penalties and interest; in phoenix cases, a new company’s tax too	Directors, shadow directors, participators and, in some cases, anyone concerned in management	30 days to ask for a review or appeal
Personal liability notice for a penalty (Finance Act 2007, Schedule 24; Finance Act 2008, Schedule 41)	Up to all of a company penalty for deliberate behaviour	Directors (including shadow directors), managers and company secretaries	Appeal as for a penalty
National Insurance personal liability notice (Social Security Administration Act 1992, section 121C)	Unpaid National Insurance, with interest and penalties	Directors, managers, secretaries and anyone acting as one	30 days to appeal
PAYE regulation 72 direction	Tax that should have been deducted from the director’s own pay	The employee, in practice usually a director	30 days to appeal
Security for PAYE or VAT	A sum held against tax the business may come to owe	For PAYE, the employer and its officers; for VAT, the business	30 days to appeal

A different kind of joint liability applies to umbrella companies: for payments from 6 April 2026, an agency or end client can be jointly and severally liable for PAYE that an umbrella company does not pay. Our page on PAYE investigations covers it. A check on the company can also raise questions about a director’s own tax, through benefits, loans or dividends; see compliance checks.

What is a shadow director?

Under section 251 of the Companies Act 2006, a shadow director is a person whose directions or instructions the directors of a company are accustomed to act on. Typically it is someone who has never been appointed but whose word the board follows. Nobody becomes a shadow director just because the directors act on advice they give in a professional capacity, as an accountant or solicitor does, and there are similar exceptions for guidance given under a statutory function or by a government minister.

The Act’s definition of “director” covers anyone occupying the position, whatever they are called, and HMRC’s National Insurance guidance treats someone who acts as a director without being appointed (a de facto director) as within reach. Most of the tax rules below name shadow directors expressly.

What is phoenixing?

Phoenixing, or phoenixism, means carrying on the same business through a series of companies, each becoming insolvent and leaving its debts behind while the trade moves on to a new one. HMRC’s guidance describes how it is often done: the suppliers needed to keep trading are paid, while PAYE and National Insurance are left unpaid. Starting again after a genuine failure is not phoenixing, and HMRC’s own guidance accepts that most insolvencies come from genuine financial difficulty. What HMRC targets is the repeated use of insolvency to leave tax behind, and the rules in this guide are its main response to that tax loss.

Two company-law rules also bear on phoenix situations; both are for a solicitor or insolvency practitioner. Under section 216 of the Insolvency Act 1986, a person who was a director or shadow director in the 12 months before a company went into insolvent liquidation cannot, for five years, be involved with a company or business using the same or a similar name, unless the court gives permission or an exception applies. Breaking that rule is a criminal offence and can make the person personally liable for the new company’s debts. Separately, the Insolvency Service can seek to disqualify a director whose conduct was unfit, which GOV.UK says includes not paying tax the company owes.

Joint and several liability notices

The broadest power is in Schedule 13 to the Finance Act 2020. It lets an authorised HMRC officer give an individual a joint liability notice, making them jointly and severally liable with the company for amounts it owes HMRC under legislation or a contract settlement. HMRC’s guidance says that includes penalties and interest.

Jointly and severally liable means HMRC can collect the whole amount from the company, from the individual, or from anyone else given a notice for the same debt; HMRC’s guidance says it does not matter who pays, as long as the full amount is paid. A notice can be given even after the company has ceased to exist, and the individual is then liable alone, or with the others notified. The rules apply to tax for periods ending on or after 22 July 2020, and cover limited liability partnerships too. There are three kinds of case.

Tax avoidance and tax evasion

An officer can give a notice if it appears that five conditions are met:

The conduct. The company has entered into tax-avoidance arrangements, which are defined by reference to particular regimes such as the general anti-abuse rule, follower notices and the disclosure rules for avoidance schemes; or it has engaged in tax-evasive conduct, meaning a deliberately inaccurate return, claim, document or information, or a deliberate failure to notify a liability to tax.
Insolvency. The company is subject to an insolvency procedure, or there is a serious possibility that it will be.
The individual’s part. Either they were responsible for the arrangements or conduct, or knowingly received a benefit from them, while a director, shadow director or participator; or they took part in, assisted with or facilitated it while a director, shadow director or someone concerned, directly or indirectly, in the company’s management. A person is treated as knowing what they could reasonably be expected to know, and a benefit received by a connected person counts as theirs.
A tax liability exists, or is likely to arise, from the arrangements or conduct.
Non-payment. There is a serious possibility that some or all of it will not be paid.

HMRC’s guidance says a serious possibility of insolvency means it has good reason to believe an insolvency event is likely, for example where the company’s assets will not cover its liabilities. A notice can come before the tax is quantified; a further notice then states the amount, with its own right of review and appeal. If the company used a marketed avoidance scheme, see also our guide to accelerated payment notices and the loan charge.

Repeated insolvency: the rules on phoenix companies

This is the rule aimed at phoenixing. An officer can give a notice if four conditions are met:

Two old companies. In the five years ending on the day of the notice, the individual had a relevant connection with at least two companies that became subject to an insolvency procedure in that period, each of which, at that point, owed tax or had tax returns or other documents outstanding.
A new company carries on, or has carried on, a trade or activity the same as or similar to that of two of the old companies.
Connection. The individual has had a relevant connection with the new company in the same five years.
The money. When the notice is given, at least one of those old companies still owes tax, and their combined tax debts are more than £10,000 and more than 50% of everything they owe to unsecured creditors.

A relevant connection means being a director, shadow director or participator. For the new company it also includes anyone concerned, directly or indirectly, or taking part in its management, so putting someone else in as a nominal director does not, by itself, take the person actually running the business outside the rule. HMRC reads “similar” broadly: a business that resembles the old one in character, perhaps sharing services, assets, staff or premises, can be similar without being identical.

The notice makes the individual jointly liable for the old companies’ unpaid tax and for the new company’s tax: what it owes on the day of the notice, and what it comes to owe over the next five years while the notice remains in force. HMRC must give the notice within two years of first having enough information to conclude that the conditions are met.

HMRC’s guidance says it does not aim these notices at people trying in good faith to rescue a failing company, or at connected people acting in good faith with no material influence over it, such as a shareholder who plays no part in running it.

Penalties for facilitating avoidance or evasion

The third case applies where the company has been charged, or faces tribunal proceedings for, a penalty under the regimes for promoters and enablers of avoidance schemes or offshore evasion. If the company is insolvent or may become so, and the penalty may go unpaid, a person who was a director, shadow director or participator at the relevant time can be made jointly liable for it.

What counts as an insolvency procedure

A company is subject to an insolvency procedure for these rules if it is being or has been wound up, is in administration or receivership, has a company voluntary arrangement or a court-sanctioned arrangement in effect, or has been struck off the register. So dissolving a company does not put its tax beyond reach. A solvent members’ voluntary liquidation does not count, unless the debts are not paid in full, with interest, within 12 months of its start.

Challenging a joint liability notice: review and appeal

A notice must say why the officer considers the conditions are met, what the notice does, and how to ask for a review or appeal. The time limits are:

Step	Time limit
Accept HMRC’s offer of a review, in writing	30 days from the day the notice is given, unless HMRC extends it
Appeal to the First-tier Tribunal instead	30 days from the day the notice is given, or the end of any extension
HMRC concludes the review	45 days from receiving the acceptance, or a period agreed
Appeal after a review	30 days from the date of the review conclusion notice
Appeal against the company’s tax, in your own name, if the company is in an insolvency procedure and has not appealed	30 days from the day the notice is given

On a review or appeal, the notice must be set aside if any condition was not met when it was given, or if keeping it is no longer necessary to protect the revenue, and a wrong amount must be corrected. What cannot be disputed in that process is the company’s own tax, which is why the last route in the table matters. Where the company is in an insolvency procedure and cannot or will not pursue an appeal it has made, the individual can join or continue it.

A late review needs a reasonable excuse, and a late appeal needs the tribunal’s permission. HMRC’s guidance says a review and a tribunal appeal cannot run at the same time, so choosing between them is often the first decision; our guide to appealing an HMRC decision explains both. HMRC must also withdraw a notice itself if a condition was not met or it is no longer needed to protect the revenue, but a withdrawal on the second ground does not give back anything already paid.

Personal liability notices for penalties

When a company is charged a penalty for a deliberate inaccuracy in a return or other document, and the inaccuracy was attributable to an officer, HMRC can give that officer a notice requiring them to pay part of the penalty, up to all of it (paragraph 19 of Schedule 24 to the Finance Act 2007). Paragraph 22 of Schedule 41 to the Finance Act 2008 does the same for a penalty for a deliberate failure to notify HMRC of a liability, and for some other penalties in that Schedule. Between the company and its officers, HMRC cannot recover more than the whole penalty. “Officer” means a director, including a shadow director, a manager or the company secretary; for an LLP, a member.

HMRC’s guidance narrows how the power is used. It tells officers to issue these notices only where the company officer gained, or tried to gain, personally from the inaccuracy, or where the company is insolvent or likely to become so. Signing the return for the company is not, by itself, evidence that the inaccuracy was that officer’s. Where insolvency is the reason, the guidance is to split the penalty equally between the officers concerned, adjusted for any personal gain already established.

The amount in the notice is payable within 30 days. The officer can appeal against the decision to pursue them, including whether the inaccuracy was attributable to them, and against the amount allocated to them, in the same way as a penalty appeal; for most taxes that means within 30 days. They cannot, as an individual, appeal the company’s penalty or the tax behind it: only the company, or its insolvency practitioner, can. If a joint liability notice later covers the same tax, HMRC’s guidance says what the officer paid under the penalty notice is deducted. The penalty ranges are in our guide to penalties for careless and deliberate errors.

National Insurance personal liability notices

Where a company has not paid its National Insurance contributions on time, and HMRC considers the failure was due to the fraud or neglect of one or more of its officers, it can give each of those “culpable officers” a personal liability notice under section 121C of the Social Security Administration Act 1992. The notice states the unpaid contributions, including interest and penalties on them, and requires the officer to pay a specified sum, with interest from the date of the notice. A sole culpable officer can be asked for the whole amount; where there are several, HMRC divides it according to culpability. If the company later pays, each officer’s liability falls.

“Officer” means a director, manager, secretary or similar officer, or anyone purporting to act as one, and HMRC’s guidance says that can include shadow and de facto directors. Neglect is judged objectively, against what a reasonable and prudent person would have done. HMRC’s guidance says it issues these notices only where it believes the failure was due to fraud or serious neglect, which protects officers of companies that failed genuinely. Its signs of serious neglect include paying directors or connected businesses while National Insurance went unpaid, using unpaid PAYE and National Insurance to fund the business, and phoenix trading.

An appeal is made in writing to HMRC within 30 days after the date the notice was issued. The grounds are set by law: that the amount is not contributions the rule covers; that the failure was not due to the individual’s fraud or neglect; that they were not an officer at the time; or that HMRC’s view on dividing the debt was unreasonable. On those grounds the burden of proof is on HMRC.

PAYE: regulation 72 directions

When an employer does not deduct the PAYE it should from someone’s pay, the employer is normally liable for the shortfall. Under “condition B” in regulation 72 of the Income Tax (PAYE) Regulations 2003, HMRC can direct that the employer is not liable, where it considers that the employee received the pay knowing that the employer wilfully failed to deduct the tax. The employee is then given credit only for tax actually deducted, so the shortfall falls on them, with interest.

HMRC’s guidance says these directions are used mainly in director cases where there is little or no prospect of recovering the tax from the company, for example because it is insolvent or has stopped trading, and that there is no time limit for making one. The employee can appeal within 30 days of the issue of the direction notice, on the grounds that they did not receive the pay knowing of a wilful failure to deduct, or that the amount is wrong.

Security for PAYE and VAT

HMRC can also act before tax is lost. Where an officer considers it necessary for the protection of the revenue, HMRC can require security for PAYE the employer is or may become liable to pay. For a company, it can require it from the company and from its directors, company secretary or similar officers, who are then jointly and severally liable for it. For VAT, HMRC can require security from a business as a condition of making taxable supplies; see VAT investigations. Failing to give PAYE security in time is a criminal offence, and so is making taxable supplies without VAT security that has been required. Both requirements can be appealed within 30 days. Because security protects tax before it is lost, it is one of the ways HMRC can respond to a risk of phoenix trading.

What to do if HMRC writes about personal liability

If a letter or notice has arrived about your personal liability for a company’s tax:

Identify the rule. The notice should name the legislation, and each route above has its own conditions, grounds and deadline.
Diary the deadline. Most run 30 days from the date of the notice. If one has passed, act at once rather than assume nothing can be done.
Keep your position separate from the company’s. They can differ. If the company is in liquidation or administration, its insolvency practitioner acts in the creditors’ interests, not for you.
Assemble the facts about your role: dates of appointment and resignation, who ran the finances, what you knew and when, and what you were paid. Each rule turns on role, knowledge or conduct.
Take advice before an interview. HMRC’s guidance tells its officers to ask company officers about their personal involvement, after explaining their rights. If HMRC invites you to an interview under caution, a criminal defence solicitor comes first; see our guide to criminal and civil investigations.

If a liability is established and cannot be paid at once, see Time to Pay arrangements, and for what follows if a debt is left unpaid, HMRC debt collection and enforcement. If you are not sure what HMRC has sent, start with identifying your HMRC letter, or contact us with a photo of page one.

Questions people ask

Can HMRC make a director pay the company’s VAT?

Not simply because the company cannot pay. But VAT is a tax liability like any other for a joint liability notice, a deliberate VAT inaccuracy can lead to a personal liability notice for the penalty, and HMRC can require VAT security before trading continues.

Can HMRC make a shareholder personally liable for company tax?

A shareholder is a participator, and a joint liability notice can reach a participator in each of the three kinds of case, if the other conditions are met. HMRC’s guidance says connected people acting in good faith with no material influence, such as a shareholder with no involvement in running the company, will not receive one under the phoenix rules. The penalty and National Insurance notices reach officers, not shareholders as such.

Does dissolving the company end the liability?

No. A company that has been struck off counts as being in an insolvency procedure for joint liability notices, and a notice can still be given after the company has ceased to exist.

I resigned before the company failed. Can I still be liable?

Possibly. The rules look at your role when the conduct or failure happened, not on the date of the notice. In the phoenix rules, a connection at any point in the five years before the notice counts. For the National Insurance notice, one ground of appeal is that you were not an officer when the failure happened.

Is it illegal to start a new company after one fails?

Not in itself. HMRC’s guidance accepts that not every phoenix company is a rogue one. The risks lie in how it is done: re-using the old name without permission or an exception can be an offence, and a run of failed companies with unpaid tax and a successor in the same trade is what the joint liability rules target. We will say at the outset if part of a matter needs a solicitor or insolvency practitioner rather than us.

Sources

Finance Act 2020, section 100 and Schedule 13 (joint and several liability of company directors etc), paragraphs 1 to 19
HMRC, “Overview of joint and several liability notices for tax avoidance, tax evasion and repeated insolvency” (GOV.UK, last updated 14 October 2021), and its detailed pages on tax avoidance and tax evasion cases and on repeated insolvency and non-payment cases (GOV.UK, 7 October 2021)
Finance Act 2007, Schedule 24, paragraph 19; Finance Act 2008, Schedule 41, paragraph 22
HMRC Compliance Handbook, CH84610, CH84615, CH84645, CH84665 and CH406300
Social Security Administration Act 1992, sections 121C and 121D; Social Security Contributions (Transfer of Functions, etc.) Act 1999, sections 8, 11 and 12
HMRC National Insurance Manual, NIM12203, NIM12204, NIM12206, NIM12210 and NIM12212
Income Tax (PAYE) Regulations 2003 (SI 2003/2682), regulations 72, 72C and 97N to 97V; Income Tax (Earnings and Pensions) Act 2003, section 684(4A) and Part 2, Chapter 11; Finance Act 2026, section 24
HMRC Self Assessment Manual, SAM142050; PAYE Manual, PAYE90020
Value Added Tax Act 1994, Schedule 11, paragraph 4, and sections 72(11), 83 and 83G
Companies Act 2006, sections 250 and 251; Corporation Tax Act 2010, section 454
Insolvency Act 1986, sections 216 and 217
GOV.UK, “Company director disqualification”

This guide is general information, not advice on any particular case.

Directors' personal liability for company tax