Imagine the scenario. Directors of a financially distressed retail group are faced with a choice between paying trade creditors, employees or tax bills as they struggle to turn their business around in the face of economic headwinds. Although the business operates under a single brand, the group’s structure is set up so that the various operational functions are subdivided into subsidiaries and the staffing, leasing and supply departments are organized separately. The group will go into pre-pack administration, with prize assets from its subsidiaries acquired and integrated with existing employees to form a new entity trading under the rescued brand. Jobs will be saved and legacy debt will remain. The restructuring was a success. Business will prosper.
A few years later, the Director received a letter from HMRC stating a notice of joint and several liability for the unpaid tax of several entities within the former group, making her personally liable for them.
This scenario is becoming increasingly familiar to us. As the six-year statute of limitations for claims against directors of companies liquidated during the pandemic approaches, there has been a flurry of HMRC-led enforcement actions against former directors. Our experience reflects what is being reported in the broader market, namely the use of joint and several liability notices (“Notice regarding JSL(according to HMRC) is on the rise. Now, in time for 2026, this enforcement action is now powered by AI. In May this year, HMRC announced a 10-year, £175m contract with a British technology company to provide AI-powered technology to help staff identify and tackle cases of fraud and tax evasion.
JSL Notice is one of the most powerful tools for revenue enforcement. A JSL Notice is a formal mechanism by which HMRC can pierce the corporate veil and hold individual directors and other company officers personally liable for unpaid corporation tax, national insurance contributions and associated penalties. These notices can be issued in a variety of circumstances, including where a company fails to pay national insurance contributions due to fraud or negligence by directors, where there is intentional inaccuracy or evasion of tax, or where there is repeated insolvency due to unpaid tax debts.
At first glance, the above directors may unconsciously fall into the last category. Under HMRC’s guidance notes, a JSL Notice may be issued in the following cases where there is “repeated insolvency and non-payment”:
Condition A – During the five years prior to the notification, the individual had a relevant relationship with at least two companies that were subject to bankruptcy proceedings for unpaid taxes or unpaid returns.
Condition B – The “new company” has or is conducting similar transactions with any two of the old companies.
Condition C – The individual has a relevant relationship with the “new company”
Condition D – The relevant old company has a tax liability of more than £10,000 which is more than 50% of those companies’ total debts to unsecured creditors.
At first glance, the above conditions may be met for many moderately sized groups that are economically disadvantaged. Corporately the liability threshold may be small, but in the personal capacity of our directors this is likely to be a significant liability and is currently being pursued personally by HMRC.
Directors in this position may have very limited protection. JSL notifications are not new, but were previously less common, although they have been significantly strengthened by the Finance Act 2020. Its infrequent use to date, the long-term nature of the risk, and the fact that it relates to directors as individuals rather than companies means that the risks of a JSL notice may be overlooked by lower-market professional advisers, particularly where directors do not employ professional advisers to act personally.
There are prescribed appeal routes. Our directors or their advisers must first request an HMRC internal review of the notice under Schedule 13.[1]then must appeal to the first-tier court. HMRC must withdraw a notice if any of the relevant conditions in Schedule 13 were not met at the time the notice was given, or if it is not necessary for the protection of income for the notice to remain in force.
Recent incidents also demonstrate the development of two lines of defense. in James Hall v HMRC [2026] The First Tier Tribunal, UKFTT 124 (TC), ruled that a JSL Notice is a type of criminal prosecution for the purposes of Article 6 of the European Convention on Human Rights. This decision would invalidate the ‘strict’ liability aspect of the JSL notice and fundamentally shift the burden of proof from individual directors to HMRC. This could be used as a new line of defense against JSL Notices at the court stage and in earlier communications. This is welcome. However, given the outcome, an appeal to a higher court seems inevitable.
Challenging a notification on the basis of abuse of process or gross unfairness is yet another line. in Ashley Charles Trees v HMRC [2026] In UKUT 92 (TCC), the Upper Tribunal prevented HMRC from recovering unpaid tax under director liability notices alleging fraud on the basis that these claims had not been adequately defended in previous proceedings. HMRC was effectively relieved of the burden of proving fraud by relying on the outcome of proceedings where no fraud was alleged. This notification was stayed by the apex court.
However, in practice, the effectiveness of this case law depends on whether the accused individual engages (and therefore pays) a lawyer and engages appropriately with HMRC. As anyone who has dealt with HMRC knows, HMRC is a unique counterparty, and its involvement is often procedural, opaque and time-consuming. This can involve multiple layers of claims handlers and long periods of inaction with the threat of further escalation. As a result, the risk of a claim that could lead to a director’s insolvency can linger for years as the appeal process drags its way to court.
With the use of AI, this situation will become even more common. Although it is presumed that AI is only being used to “assist” human claims officers in decision-making when proceeding with these types of cases, it is likely that the use of AI will result in HMRC issuing more JSL notices based on margin or edge cases, some of which would not be proceeded with by claims officers applying common sense.
Therefore, despite the latest case law, the threat of JSL notifications has not disappeared. As directors navigate their companies through the pressures of financial distress, they need to bear in mind the power of revenue to scrutinize and recover insolvency transactions, even if they believe their actions were entirely appropriate.
[1] Finance Act 2020, Schedule 13
