Abuse of so-called “phoenix” company structures cost HM Revenue & Customs (HMRC) an estimated £836 million in 2022/23, according to leading tax specialists.
The practice, in which a company intentionally winds up to avoid liabilities while its business is continued through a new company, remains a significant concern for the UK government and taxpayers.
Tax experts are calling for urgent action to strengthen enforcement against directors who repeatedly use phoenix structures to evade tax debts, with a view to narrowing the tax gap and ending support for tax avoidance schemes.
Understanding Phoenixism and Its Impact
Phoenixism involves winding up a company and starting a new one, typically under the same directors, so that business activities continue while debts are left behind.
While this structure can have legitimate uses, such as in genuine insolvency cases, experts warn it is frequently misused. The process is often exploited for the deliberate evasion of tax liabilities and other debts.
A pattern has emerged where some entities repeatedly 'phoenix', each time leaving creditors and the Exchequer unpaid. This undermines trust in the business environment and causes notable revenues losses for public finances.
Financial Scale of Phoenixism to the UK Taxpayer
The financial impact of phoenixism has grown substantially. Losses to HMRC linked to these structures reached approximately £836 million in the 2022/23 financial year.
This figure is 45% higher than previous estimates and reflects the substantial cost inflicted on public funds. Although a precise distinction between legitimate and abusive phoenix activity is difficult to determine, tax experts agree the majority of losses are linked to abuse. Phoenix structures are commonly observed among promoters of tax avoidance schemes, compounding concerns for enforcement authorities.
Enforcement Challenges for HMRC
Tax and insolvency professionals have raised concerns about HMRC’s current enforcement approach, warning it remains insufficient to deter repeat offenders. Under the existing system, directors often re-emerge with new incorporated entities after liquidation, avoiding personal responsibility for company debts.
Data shows only seven directors were disqualified for abusive phoenixism between 2018 and 2024, while overall 6,274 directors were removed from office for a range of reasons in this period. This low level of direct intervention against phoenixism highlights the challenge facing tax authorities.
Promoted Tax Avoidance Schemes and Phoenix Structures
Abuse of phoenix arrangements has become prevalent among promoters of marketed tax avoidance schemes. By frequently re-establishing under new company names, promoters sidestep legal shutdowns, financial penalties, and monitoring requirements.
This “shape-shifting” complicates regulatory intervention and prolongs exposure to risky tax schemes. Experts note that, despite increased publicity surrounding such arrangements and efforts to close loopholes, many promoters continue to offer both new and legacy avoidance schemes.
This perpetuates both extensive tax losses and personal hardship for individuals involved, many of whom thought they were engaging in compliant practices.
Calls for Tougher Director Accountability
Specialists are urging HMRC to make greater use of personal liability notices, which would allow debt recovery from directors personally rather than just failed companies. Additional calls have been made for more director disqualifications and prosecutions, particularly for repeat offenders who exploit phoenixing to escape sanctions.
“Without proper accountability through fines, penalties, or in some cases criminal sanctions, offenders can persistently phoenix their companies without consequence,” one leading adviser stated.
Current policy tools, including the Targeted Anti-Avoidance Rule (TAAR) and wider use of criminal enforcement, are effective only if applied robustly and consistently.
Final Summary
The mounting cost of phoenix company abuse now presents an urgent challenge for HMRC. With taxpayers losing an estimated £836 million in a single year, pressure is increasing for stronger enforcement and an overhaul of director accountability rules.
Failure to clamp down on repeat offenders not only strains the public purse but also emboldens promoters of tax avoidance schemes, with wider financial and societal consequences. Tighter monitoring, personal liability for directors, and closer inter-agency cooperation are central to efforts to reduce the tax gap and promote business integrity.
To stay updated and manage compliance risk, businesses and professionals may wish to track ongoing developments through resources like the Pie tax app.
