UK Taxpayers Lose Millions To Company 'Phoenixism'

Imagine a business collapsing under a mountain of debt, only for its former owners to swiftly relaunch a near-identical operation, free from those financial burdens. This isn't a hypothetical scenario; it's a practice known as "phoenixism," and it's reportedly costing UK taxpayers hundreds of millions of pounds each year, particularly within the recruitment sector. This controversial tactic involves a company being liquidated, effectively wiping its slate clean of outstanding liabilities, before its former directors or shareholders launch a new, debt-free entity from its remnants. The problem? Many of those unpaid debts include significant sums owed to HM Revenue and Customs (HMRC), meaning the public purse ultimately foots the bill. HMRC estimates this financial manoeuvre costs the taxpayer a staggering £800 million annually. Recent analysis suggests that in the 2022-2023 financial year alone, phoenixism accounted for approximately £840 million of the total £3.8 billion in reported tax losses. Several recent cases highlight the issue. Recruitment firm Russell Taylor, for instance, was acquired from a pre-pack administration – an insolvency process agreed in advance – for £200,000 plus further instalments. This move appears to have left almost £1 million in HMRC debt unpaid. Remarkably, this was the second time in a decade that connected parties had resurrected the business from insolvency, with its current managing director involved in all three iterations. Similarly, Silven Recruitment, a specialist in the food and drink industry, was bought for around £150,000 by its former director and majority shareholder, Jeremy Pierce, after owing HMRC about £600,000. While Pierce insists he fought exhaustively to avoid administration and that the sale was a last resort to preserve jobs, the outcome saw a significant tax debt reduced and a new company emerge under his continued leadership. Another example saw Qualiteach, a firm supplying teachers to schools, sold for just £27,000 to a connected party, despite owing the taxpayer over £300,000. In this instance, the old and new companies shared a common director and shareholder. While some argue that phoenixism can allow businesses to continue trading and eventually recoup lost taxes, experts like Professor Louise Gracia from Warwick Business School are sceptical. She suggests the reverse is more likely, warning that such practices can encourage a cycle of repeat insolvencies if financially advantageous. This also creates unfair competition for businesses that honour their debts. Ultimately, the millions lost through these company resurrections represent funds that could otherwise support vital public services across the UK. It raises serious questions about fairness and accountability when businesses can shed their tax obligations, only to seemingly rise from the ashes, leaving the taxpayer to pick up the tab. --- Managing your business finances? TaxAce provides smart online accountancy services for UK businesses with flexible monthly plans. Image and reporting: https://www.theguardian.com | Read original article