The recent decision in Barriball & Whitehouse v Jackson & Hughes [2026] EWHC 1135 explained that the consequences of a tax scheme which does not work can be visited on the directors. This may cause alarm in some quarters.
What happened is that HSJ Consultancy Ltd entered into a tax scheme which in due course was successfully challenged by HMRC. It involved substantial payments to an EFRBS and an Employee Benefit Trust for the benefit of the directors. These payments, the related PAYE and NIC liabilities, and the failure of the company to obtain a tax deduction for the payments, rendered the company insolvent.
The liquidators sought to recover from the directors on the grounds that they were in breach of their duty to creditors when entering into the arrangements as the company’s solvency depended on the tax scheme being successful.
The High Court agreed, holding that the directors were personally liable as they failed to consider how the company’s tax liabilities should be met if the scheme failed – and they could not hide behind the limited liability of the company.
There are some difficult judgments to be made in such circumstances, not least about the prospects of success of the scheme, but also about how and when the potential tax liabilities should be reflected in the accounts – in particular, whether they should be regarded as contingent liabilities. The court held that the assessments made by HMRC were not contingent liabilities, saying that: ‘A disputed liability is not a contingent liability’.
This is not an easy conclusion having regard to IAS 37 which defines contingent liabilities as:
‘possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity’.
That seems to be exactly the case where there is a claim which is disputed. Perhaps the answer in a tax case is that an assessment to tax stands good unless and until it is shown by the taxpayer to be incorrect (TMA 1970 s 50(6)).
However, maybe this does not really matter because the test for insolvency under Insolvency Act 1986 s 123 is that a company is unable to pay its debts:
‘if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into accounts its contingent and prospective liabilities’ (emphasis added).
The reference to ‘prospective liabilities’ would seem to be more important because an assessment from HMRC would seem clearly to be a prospective (in the sense of ‘potential’) liability, even if it is disputed.
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Directors’ liability: tax schemes
The risks when a tax scheme fails.
The recent decision in Barriball & Whitehouse v Jackson & Hughes [2026] EWHC 1135 explained that the consequences of a tax scheme which does not work can be visited on the directors. This may cause alarm in some quarters.
What happened is that HSJ Consultancy Ltd entered into a tax scheme which in due course was successfully challenged by HMRC. It involved substantial payments to an EFRBS and an Employee Benefit Trust for the benefit of the directors. These payments, the related PAYE and NIC liabilities, and the failure of the company to obtain a tax deduction for the payments, rendered the company insolvent.
The liquidators sought to recover from the directors on the grounds that they were in breach of their duty to creditors when entering into the arrangements as the company’s solvency depended on the tax scheme being successful.
The High Court agreed, holding that the directors were personally liable as they failed to consider how the company’s tax liabilities should be met if the scheme failed – and they could not hide behind the limited liability of the company.
There are some difficult judgments to be made in such circumstances, not least about the prospects of success of the scheme, but also about how and when the potential tax liabilities should be reflected in the accounts – in particular, whether they should be regarded as contingent liabilities. The court held that the assessments made by HMRC were not contingent liabilities, saying that: ‘A disputed liability is not a contingent liability’.
This is not an easy conclusion having regard to IAS 37 which defines contingent liabilities as:
‘possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity’.
That seems to be exactly the case where there is a claim which is disputed. Perhaps the answer in a tax case is that an assessment to tax stands good unless and until it is shown by the taxpayer to be incorrect (TMA 1970 s 50(6)).
However, maybe this does not really matter because the test for insolvency under Insolvency Act 1986 s 123 is that a company is unable to pay its debts:
‘if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into accounts its contingent and prospective liabilities’ (emphasis added).
The reference to ‘prospective liabilities’ would seem to be more important because an assessment from HMRC would seem clearly to be a prospective (in the sense of ‘potential’) liability, even if it is disputed.
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