The government pledged £25 million over five years in last November’s Budget to establish a 50-strong unit to investigate directors suspected of deliberately liquidating or dissolving companies to avoid paying tax and other debts before starting again under a new business.

HM Revenue & Customs estimates phoenixism accounted for 22% of the £3.8 billion in tax losses recorded in 2022-23.

Dave Magrath, the Insolvency Service’s director of investigation and enforcement services, said tougher enforcement was important but broader policy reforms would also be needed.

He said authorities needed to strike a balance between preventing abuse of the insolvency system and allowing honest entrepreneurs whose businesses fail to start again.

The taskforce, which began operating in April and is expected to be fully operational next year, is part of a joint initiative involving the Insolvency Service, HMRC and Companies House, The Times reports.

Meanwhile, ministers are expected to strengthen the Company Directors Disqualification Act following a recent consultation, widening the circumstances in which directors can be banned for misconduct.

The move follows criticism from the National Audit Office, which found last year that only seven directors had been disqualified for phoenixism between 2018-19 and 2023-24 despite thousands of director bans being issued overall.