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HMRC internal manual

National Insurance Manual

NICs Personal Liability Notices (PLN): phoenixism

Section 121C of the Social Security Administration Act 1992

Phoenixism is a term used to describe the practice of carrying on the same business or trade successively through a series of companies where each becomes insolvent (that is, it can’t pay its debts) in turn. Each time this happens, the insolvent company’s business, but not its debts, is transferred to a new, similar ‘phoenix’ company. The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved. Only essential trade suppliers will be paid in full before the transfer, so that Income Tax PAYE and National Insurance contributions (NICs) often remain deliberately outstanding.

It’s important to note that not all phoenix companies are ‘rogue’ companies.

In cases involving phoenixism and where there has been an underpayment of NICs, section 121C of the Social Security Administration Act 1992 (section 121C) may be considered by HMRC, both in respect of any liquidated company and any current ‘live’ company that has an underpayment of NICs.

During the Parliamentary Debates on the introduction of the PLN legislation particular attention was paid to the problems associated with phoenix-type companies, with the government stating:

“We intend that the measure will be used primarily, although not exclusively, to catch phoenix-type directors who deliberately and repeatedly fail to pay contributions – and usually PAYE tax – and then put the company into insolvency, having made a personal financial gain.”

Whilst not conclusive the following may indicate phoenixism and a potential PLN enquiry:

  • rapid build up of NIC debts
  • payment of selected debts e.g. trade creditors at the expense of HMRC liabilities
  • transfer of assets, or sale of the assets by the liquidator to a new company or connected officer of the company, possibly at a lower than expected value - this may include transfer of work in progress