Losses to HMRC were £836 million in 2022/23

HMRC must take stronger action to combat the abuse of “Phoenixism,” according to Blick Rothenberg, a leading audit, tax, and business advisory firm.

Fiona Fernie, a partner at the firm, explained, “Phoenixism is the process of winding up a company and then forming a new company, often controlled by the same individuals, to continue essentially the same business.

While this practice can be legitimate at times, it is frequently exploited to evade tax liabilities and other debts deliberately.

Some UK companies have undergone multiple ‘phoenixing’ instances, each time owing millions to HMRC and other creditors. HMRC must do more to eliminate this abusive practice.”

Fernie stated, “The losses to the Exchequer due to Phoenixism were approximately £836 million in 2022/23—45% higher than previously estimated. Although we do not have a precise breakdown of these losses between legitimate and abusive cases, it is reasonable to assume that a significant portion results from abuse, particularly since this practice is common among promoters of tax avoidance schemes.”

To address this issue, Fernie emphasised that HMRC should increase its use of personal liability notices, which hold directors accountable rather than just the companies. She also called for more director disqualifications and prosecutions of repeat offenders. “Without proper accountability through fines, penalties, or even jail time, tax evaders can continuously ‘phoenix’ their companies,” she cautioned.

Moreover, she noted that when Phoenix structures are used to perpetuate marketed tax-avoidance schemes, they serve as a formidable barrier to regulatory intervention. This issue becomes even more pressing when such structures allow promoters to avoid shutdowns, penalties, and injunctions by repeatedly re-establishing under new corporate entities, a phenomenon sometimes referred to as “shape-shifting.”

Fernie remarked, “Despite the publicity surrounding marketed avoidance schemes, there are still promoters actively selling both new and old arrangements. This not only costs the Exchequer millions, but also places many individuals who believed they were participating in legitimate schemes in significant financial and emotional distress.”

She added, “HMRC has enhanced its instruments, including the Targeted Anti-Avoidance Rule (TAAR), upfront deposits, criminal enforcement, and a coordinated ‘multi-agency’ strategy with Companies House and the Insolvency Service to detect Phoenixism. However, they need to intensify their efforts. Between 2018 and 2024, only seven directors were disqualified for abusive Phoenixism, while a total of 6,274 directors were disqualified in that period.”

Finally, Fernie stressed, “Taking stronger measures against Phoenixism will help close the tax gap and prevent the continual use of this practice to assist promoters of marketed tax avoidance schemes in obstructing HMRC’s attempts to impose penalties, enforce Promoters of Tax Avoidance Schemes (POTAS) monitoring, ensure compliance with Disclosure of Tax Avoidance Schemes (DOTAS) regulations, and restrain promoter activities through legal action.”