DSS’ phoenix swoop

Phoenix company directors who deliberately go bust leaving millions in unpaid tax and National Insurance face jail and seizure of their property in a government crackdown. Ministers hope to stop a fraud which costs the taxpayer nearly #150m a year.

Directors who close down their business to trade again under a different name could be imprisoned for seven years and have their homes and personal possessions seized. Directors currently face a maximum fine of #1,000 or deduction of their personal NI contributions.

Outlining the proposals, John Denham, social security minister, said: ‘These powers should deter this type of fraud and give the taxpayer real financial redress. Employees’ pay packets show tax and NICs but the money is rarely paid over by phoenix directors.’

Last week, the government tabled a clause to the social security bill, before Parliament now, introducing the offence of ‘fraudulent evasion of NICs’.

It will enable unpaid NICs and any associated interest and penalties to be transferred to the culpable directors or officers of the company.

Under the new rules decisions will be made by a specialist team in the Contributions Agency with appeal to a new DSS tribunal.

The minister cited classic cases of phoenixism, including:

A one-man land-investment company voted himself a #1m bonus. He owned other companies and funds appeared to be circulating among them. He withdrew the #1m, which included #400,000 for NICs and tax.

The company went into voluntary liquidation and the #400,000 never reached the Contributions Agency nor the Inland Revenue.

A construction company director with a history of failed (phoenix) businesses instructed his company to award him a taxed #30,000 payment.

The firm went into voluntary liquidation owing #18,000 in NICs and #18,000 in VAT. No funds were available to pay creditors.

A clothing and wholesale footwear company, with a turnover in excess of #400,000, had no NICs or tax records, yet claimed to have three employees.

The company’s assets were sold for #110,000. That money was salted away over three months before the company stopped trading.

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