Can HMRC hold a Company Director Responsible for Unpaid Tax?
The simple answer to that question is yes. HMRC is very aware that some company directors and officers intentionally abuse the tax system by hiding behind their limited liability. Having the power to lift the ‘veil of incorporation’ to make officers personally liable for some company debts allows HMRC to increase revenues, ensure HMRC debts are paid as a preference and deter company officers from abusing their position.
Company directors can be made personally for the non-payment of PAYE, National Insurance contributions (NICs) and VAT, where the evidence shows the company’s failure to pay was deliberate or the result of neglect or fraud.
HMRC has the power to transfer the unpaid PAYE debts of a company to a particular director or officer and seek recovery from them personally if they ‘wilfully failed’ to deduct tax. This requires culpability on the part of the director in knowing the PAYE would not be paid.
HMRC also has the power to seek the recovery of unpaid National Insurance contributions from individual directors by issuing a Personal Liability Notice for the debt. HMRC will consider issuing a Personal Liability Notice if the failure to pay the NICs is due to the fraud or neglect of the director.
The third tax company directors can be made personally liable for is VAT. If the failure to pay VAT is deliberate or a company director takes any action to evade paying VAT, they can be made personally liable. However, this is only the case if the company the non-payment relates to is insolvent, or if it is expected the company will be insolvent soon.