What Is Phoenixing?

“Phoenixing” refers to a practice in which a company is liquidated—often leaving behind debts it owes, including tax liabilities—and then essentially re-created under a new name, with the same or very similar business, assets, or management. When this is done deliberately to avoid paying creditors (including HM Revenue & Customs), it is illegal, particularly if the earlier company is stripped of assets or fails to settle debts before dissolution. Not all business failures are phoenixing: genuine insolvency can happen for many reasons. But phoenixing abuses the system by repeatedly shedding liabilities and re-establishing operations under a “clean” identity.

The Scale of the Tax Loss

HM Revenue & Customs (HMRC) estimates that in the 2022-23 financial year it lost £836 million through small-business phoenixing. That figure is significantly higher than previous estimates of around £570 million.

Phoenixing now accounts for roughly one-fifth of HMRC’s total tax losses for that period—that is, the money owed but deemed unlikely to be collected. Many of the businesses involved are in the retail sector, where firms may close, leave debts, then reopen in a slightly altered form, making recovery of unpaid taxes difficult.

Why the Increase?

Several factors are contributing to the rise in losses due to phoenixing:

• Pandemic-caused delays in recognising or declaring insolvencies appear to have exacerbated the problem. Some companies that should have been wound up earlier remained operating, allowing liabilities to accumulate.
• The scale and frequency of phoenixing have grown, particularly among smaller businesses, where oversight can be weaker.

HMRC’s Response and Measures Underway

The government has acknowledged the problem and begun implementing measures involving HMRC, Companies House, and the Insolvency Service.

Some of the steps being taken include:

• Making more directors personally liable in certain cases for the debts of their companies, when phoenixing is involved.
• Increasing enforcement powers and demands for payments up front in situations that suggest a risk of phoenixing.
• Stricter scrutiny of company dissolutions and corporate restructuring to ensure that liabilities are not simply shifted or left behind.

Why This Matters — Especially for Companies Facing Financial Stress

For businesses, particularly small and medium-sized enterprises, the rise in phoenixing has several knock-on effects:

• Competitive fairness: Legitimate businesses that play by the rules can be undercut by those avoiding debts and tax, giving phoenixing-involved firms an unfair advantage.
• Risk of liability: Directors need to be aware that increasingly, the government is moving to hold individuals personally responsible in cases of deliberate abuse.
• Regulatory and financial scrutiny: There may be more frequent investigations, demands for past payments, and stricter conditions placed on insolvency or restructuring.

For organisations like Parker Walsh, this trend underscores the importance of advising clients generally on proper insolvency procedures, ensuring that any winding down or restructuring is done in compliance with laws, and being alert to the risks of phoenixing—not only for those doing it, but also for those inadvertently caught up in supply chains or trade relationships.

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