HMRC Expands Use of AI-led Fraud Detection, Increasing Personal Claims Against Ex-Directors

Imagine a scenario - a director of a financially distressed retail group faces the choice of paying trade creditors, staff, or tax liabilities as she struggles to turn around a business facing economic headwinds. The business trades under a single brand, although the structure of the group is set up such that different operational functions are compartmentalised by subsidiary, with separate entities for staffing, leasing, and supply. The group enters a pre-pack administration and prize assets from the subsidiaries are acquired and combined with the existing workforce into a new entity trading under the rescued brand. Jobs are saved and the legacy liabilities are left behind. The restructuring is a success. The business flourishes. 

A few years later, the director receives a letter from HMRC – a Joint and Several Liability Notice for the unpaid taxes of multiple entities in the former group, making her personally liable for them. 

This scenario is increasingly familiar to us. As we approach the six-year limitation date for claims against directors of companies wound up during the pandemic years, we have seen a spate of HMRC-driven enforcement action against ex-directors. Our experience reflects what is being reported in the wider market – that the use of Joint and Several Liability Notices ("JSL Notice") by HMRC is on the rise. And in keeping with 2026, this enforcement action is now AI-assisted. In May of this year, HMRC announced a 10-year, £175 million deal with a British tech firm to provide AI-powered technology to help its personnel identify and address instances of fraud and tax evasion. 

The JSL Notice is one of the revenues' most powerful tools for enforcement. JSL Notices are formal mechanisms by which HMRC may pierce the corporate veil and make individual directors and other company officers personally liable for unpaid company taxes, national insurance contributions, and related penalties. These notices can be issued in various circumstances, including where a company has failed to pay national insurance contributions due to an officer's fraud or neglect, where there has been deliberate tax inaccuracy or evasion, or where there are repeated insolvencies with unpaid tax liabilities. 

On the face of it, our director above may unwittingly qualify into that last category. Under HMRC's guidance note a JSL Notice may be issued in cases of "Repeated insolvency and non-payment" where: 

Condition A - during the five years prior to the notice, the individual had a relevant connection with at least two companies which became subject to an insolvency procedure with unpaid tax liabilities or outstanding returns; 

Condition B - a ‘new company’ is or has been carrying on a similar trade to any 2 of the old companies

Condition C - the individual has a relevant connection to the ‘new company’ 

Condition D - And the relevant old companies have a tax liability of more than £10,000 that is more than 50% of the total amount of those companies’ liabilities to their unsecured creditors. 

On the face of it, the above conditions might be satisfied for many modest sized groups in financial distress. Although the liability threshold might be small in corporate terms, for our director in her personal capacity it is likely to represent a large liability for which she is now personally in HMRC's crosshairs. 

Directors in this position are likely to have has very limited protection. While JSL Notices are not new, they were significantly bolstered by the Finance Act 2020, before which they were less common. Their hitherto infrequent use, the long-term nature of the risk, and the fact that it is a relates to the director as an individual rather than the company, means a the risk of a JSL Notice is something that might be overlooked by professional advisors at the lower end of the market – and particularly where a director has not engaged professional advisors to act for them personally. 

There are prescribed routes of appeal. Our director or her advisors must first request an HMRC Internal Review of the Notice under schedule 13^[1], after which an appeal must be made to the First-Tier Tribunal. HMRC must withdraw the notice if any of the relevant conditions of schedule 13 were not met at the time the notice was given, or if it is not necessary for the protection of the revenue for the notice to continue to have effect. 

Recent cases also show two developing lines of defence. In James Hall v HMRC [2026] UKFTT 124 (TC), a First Tier Tribunal held that a JSL Notice was a type of criminal charge for the purpose of article 6 of the European Convention of Human Rights. This decision nullifies the 'strict' liability aspect of a JSL Notice and fundamentally shifts the burden of proof from an individual director to the HMRC. It will likely be used as a new line of defence to JSL Notices at the Tribunal stage and in earlier correspondence. This should be welcomed. Given its consequences however, it seems inevitable that it is appealed to the Upper Tribunal. 

Contesting notices on the basis of an abuse of process or material unfairness is a further line. In Ashley Charles Trees v HMRC [2026] UKUT 92 (TCC), the Upper Tribunal prevented HMRC from recovering unpaid taxes under a Director’s Liability Notice that alleged dishonesty, on the basis that those allegations had not been properly pleaded in earlier proceedings. HMRC had effectively been treated as having discharged the burden of proving dishonesty by relying on findings from proceedings in which dishonesty had not been alleged. The notice was set aside by the Upper Tribunal. 

Practically however, the effectiveness of this case law relies on an accused individual engaging solicitors (and therefore, paying their fees) and proper engagement with HMRC. As anyone who has dealt with HMRC knows, it is a unique counterparty, with engagement often procedural, opaque, and slow. It is likely to involve multiple layers of claims-handlers and long-periods of inaction during which the threat of further escalation lingers. The result of this is that the risk of claims that may well lead to the bankruptcy of a director may linger for years while an appeals process drags towards a Tribunal. 

The use of AI is likely to make these circumstances more common. While putatively AI is only being used to "assist" human claims handlers in making decisions in pursuing these types of cases, its use seems likely to lead to HMRC issuing more JSL Notices based on margin or edge-cases, some of which would not be progressed by a claims-handler applying common sense.

So, despite the latest case law, the threat of a JSL Notice has not disappeared. For a director steering a company through the pressures of financial distress, the revenue's power to scrutinise and pick-over insolvent transactions should be borne in mind – even where they believe their actions are entirely proper.