What is ‘phoenixing’ and why is it costing HMRC millions?

A growing practice, known as ‘phoenixing’, is costing HMRC millions in lost tax revenue, the Financial Times reports.

The term refers to the tactic of repeatedly liquidating a limited company and then re-registering under a new name, sometimes deliberately, to dodge tax bills and other debts. One visible example might be the constant churn of sweet shops on Oxford Street.

The impact of this phenomenon on HMRC is significant. In the 2022–23 tax year alone, phoenixing companies accounted for an estimated £836 million in lost revenue—the most recent year with available data.

What is phoenixing?

Phoenixing is a phenomenon where company directors liquidate a failing business and immediately set up a new one under a different name. Essentially, they’re offering the same goods or services and following the same business model, just with a fresh identity.

Many phoenixing companies do this deliberately to avoid paying taxes or other debts, which often go unpaid because the old company’s assets have been dissolved. Unsurprisingly, HMRC ends up feeling the impact.

When done intentionally, phoenixing is illegal and considered tax evasion. Directors caught in the act can face disqualification, prosecution, and reputational damage, consequences that will take more than a name change to fix.

Which companies are phoenixing?

Phoenixing can happen in any sector, but a typical real-world example is several of the US-themed sweet shops you might see walking down Oxford Street. 

It’s also common in construction and retail businesses. These industries often have high turnover, tight margins, and a business model that can be easily re-established, making them more prone to phoenixing.

It’s important to note, however, that not every business that rises from the ashes counts as phoenixing. Genuine closures and restarts happen all the time, for example, when entrepreneurs pivot, restructure, or launch new ventures. 

Serial entrepreneurs are free to legally start new businesses, but they must make sure not to appear as though they are “dumping” debts by leaving liabilities behind in the old company.

Insolvency vs liquidation – what’s allowed?

It’s easy to mix up insolvency and liquidation, but they are two separate things. 

Insolvency happens when a company can’t pay its debts when they are due, while liquidation is the formal process of closing a company and distributing its remaining assets. 

In both cases, directors have legal duties to act responsibly, prioritise creditors, and avoid taking shortcuts that could break the law.

Legally, directors are within their rights to start a new business after filing for insolvency. However, there are rules: you can’t reuse the same or a very similar company name within five years without permission from the court.

For SMEs, the safest approach is to seek professional advice, maintain transparent records, and steer clear of taking shortcuts. Following the rules protects both your business and reputation, plus it keeps you on the right side of HMRC and the law.