When a company goes into liquidation, those involved may start a
new company which is commonly in the same trade, and may use the
same assets or name as the liquidated company. These new companies
may be called ‘successor’ or ‘phoenix’
companies.
Experience shows that successor companies present a higher
risk of non-compliance and many result in a substantial tax loss to
the Department
To deal with this risk, and to provide targeted education and
support to directors with previous failures, procedures are used to
bring new cases to the attention of Recovery Offices so they are
better able to combat this type of default.
Successor companies are highlighted on BROCS and IDMS by the
setting of the phoenix signal.
The signal is set on the BROCS record by the Recovery Office
only if all the criteria below are met.
An associated Insolvency Compliance Unit (ICU) or office
involved in similar work will generally identify successor
companies which meet the criteria and ask the Recovery Office to
set the signal.
The criteria for setting the signal are
‘The liquidated company’ includes any company which has gone into compulsory or creditors’ voluntary liquidation or one which has been struck off the Companies Register. It does not include administrative receiverships or company administrations unless and until the exit is liquidation or striking off.
When the setting of the signal is appropriate, the ICS (or similar office)
the reference number
the address and telephone number of the successor company and a contact point
an indication of the likely payroll size/estimated monthly yield (this must be included)
an indication of any likely risks (for example if Regulation 72(5)/81(4) (formerly Regulations 42(3)/49(5)) action was considered in respect of the directors of the previous company).
Note: The ICU will contact the local Indirect Taxes office at
this stage.
Once a case has been referred to the Recovery Office no
follow up action is needed. However the ICS if required may
Because of the greater risk of tax loss it is vital that
suitable cases for setting the signal are identified at the
earliest opportunity. Full use should be made of local
intelligence.
For example, a successor (‘second’) company may
not necessarily be of the phoenix type but an honest second attempt
following the genuine failure of the first company. But when this
is not so action needs to be taken quickly.
An ICU may not become aware of phoenixism until a pattern
emerges with a third company. The Recovery Office may be better
placed from local knowledge to identify phoenixism with the second
company.
Employers’ Sections opening a scheme in the normal
course of events (and not when asked by the ICU) may have
information to identify a phoenix company.
In all such circumstances the Employer’s Section or
Recovery Office should contact the ICS to enable the early setting
of the signal.
On receiving the memo from the ICS (or similar office) the Recovery Office must
The Recovery Office must
Exceptional cases
If the Recovery Office learns of a successor company
either which fits the criteria but has not
received a memo from an ICS
or where, for example
it may
If there is no associated ICU the Recovery Office should still
make a note in the central file.
In all cases it is helpful for the Recovery Office to
When the Phoenix signal is set BROCS will issue the initial PR
reminder (PR1/PR4 if applicable) and then make overdue months LA as
the next action (except Bands 8-10).
When IDMS receives a work item with the Phoenix signal set, a
Phoenix signal is also set on the Taxpayer Information Screen (TIS)
on IDMS. If a telephone number exists the work item will be
referred to the RTC (Employers) for a telephone call appropriate to
the circumstances. If this is unproductive the debt will be
established and a form P101 will be issued for any amount in excess
of £100 (the £2500 limit does not apply to phoenix cases
because of the risk factor).
However, to ensure that the calculation is based on accurate
figures, the first time a work item leaves RTC (Employers)
regardless of whether contact has been made or not, the work item
will be referred to C/W QUANT even if one or more payments have
been made.
When there are certain signals or exception conditions
present for the employer, work items will be referred to the
appropriate worklist. This will usually be C/W New Business.
Work lists
Work items for phoenix cases can be identified by refining
the work list using criteria PLA/inf; is equal to; PH. They should
then be given higher priority in view of the greater risk of tax
loss.
Reviewing cases
From now on Recovery Offices must
each month
It is important to ensure that payments are received at the expected level (within a 15% tolerance) and that the company is not making nominal payments, or lesser payments for the employees and which exclude the directors. Since work items are cleared by any payment the check should be carried out independently of any work items which remain uncleared.
If discrepancies are identified
Quantification
Once a work item is referred to C/W QUANT Officer role for
Regulation 97 (formerly Regulation 55) action, the company should
be pursued by a personal call not a telephone call to
Liaison with Indirect Taxes
Before taking recovery action tell your contact point in the
DMU / EIS(L) (as in the Best Practice Guide) so that a joint
approach to include the recovery of any outstanding Indirect Taxes
may be considered.
RLS cases
If a phoenix company becomes RLS the Recovery Office should
not at that stage move it to the C/W RLS role but instead
It may be that the company is trading instead from a
director’s personal address. Once a case is moved to the C/W
RLS role it may be subject to delays while a new address is sought
and therefore only if enquiries are unsuccessful should the case be
moved.
Cessation cases
In some cases to avoid formal insolvency proceedings which
may involve creditors’ meetings at which the directors are
exposed to questioning possibly by angry creditors, a company will
simply cease trading without being struck off the Companies
Register.
When this occurs it may be too late to recover PAYE/NIC debts
particularly in relation to employees. But there are alternative
rights of recovery from the directors. Recovery Offices should
therefore
The signal may now be unset by the Recovery Office and without
reference to the ICS.
It is important that the signal is not unset prematurely
particularly as new, phoenix companies may only be compliant in
payment of their monthly remittances for a limited period following
incorporation.
Therefore the Recovery Office must
only unset the signal
Guidance Notes within the QA/QC PAYE Current Module reflect the actions to be taken by Recovery Offices when the Phoenix signal is set.
Intelligence gained during insolvency compliance work of all
types is vital to the successful monitoring or pursuit of successor
companies.
It is essential that you tell the ICS (or similar office)
which asked for the signal to be set or any other office, for
example the PAYE Directions Unit (PDU), about any information you
obtain which you think is relevant (for example, links with other
business interests and directors’ life style).
When appropriate, such as successor companies incurring
significant tax debts which they will not pay, fast track the case
to EIS.
Send the case to EIS for fast-track winding up with
information obtained from the Service (Assessing) Office. If the
Service Office considers a case for fast-track submission it will
liaise with the Recovery Office.
For phoenix cases it is not necessary to obtain a County
Court Judgment, Magistrates Order or in Scotland, a Sheriff Court
decree before sending the case.
Sending the case to EIS
The papers must include a report headed ‘Phoenix
Company: Fast Track’ (and for England and Wales, ‘EIS
Worthing, Recovery Team 5 (Companies), Fast Track Team’).
Whenever possible include
In Scotland transfer your PAYE/NIC debt using the Example Memo
EIS will issue a form P101 estimate.
