The NAO found that 42% of newly incorporated companies in 2023 were retailers, compared to 23% from other sectors. The report warned that the retail industry is especially vulnerable to tax fraud.
Phoenix Companies and Tax Evasion
The report also flagged the issue of phoenix companies, where businesses go insolvent to avoid tax debts and then resurface as new entities. Phoenixism accounted for £500 million in lost tax revenue in 2022-23, but the NAO suggested the scale of the problem could be significantly larger.
Although the Insolvency Service disqualified seven directors for phoenixism between 2018 and 2024, this represents just a small fraction of the 6,274 directors disqualified in that period. An Insolvency Service spokesperson emphasized the agency’s efforts to tackle phoenixism using both civil and criminal powers.
HMRC’s Response and Future Plans
While HMRC has been granted new powers, such as the ability to name and shame promoters of noncompliant schemes, the NAO criticized the tax authority for not fully using these tools, especially in the retail sector. HMRC acknowledged the report’s findings and stated that it will carefully evaluate its strategy to better target tax evasion.
