HMRC Personal Liability Notices: The Process and Potential Impact
The non-payment of debts to the Crown has long been a major factor in whether the director of a company that fails to meet its obligations is subject to a directorship disqualification. A disqualification prevents the directors of the company from being directly or indirectly involved in the promotion, formation or management of a company without leave of the Court. However, company directors who fail to pay their PAYE and National Insurance liabilities also run the risk of receiving a personal liability notice (PLN), which can make them personally liable for any unpaid contributions.
Section 121C of the Social Security Administration Act 1992, gives HMRC the power to issue personal liability notices to individuals involved in the management of the company they consider to be responsible for the non-payment. This is a method of recourse HMRC are increasingly choosing to follow and even have a specialist enforcement team to conduct investigations.
When will HMRC issue a PLN?
The legislation that allows HMRC to issue and enforce personal liability notices only applies to unpaid PAYE and National Insurance contributions, and not VAT or any other unpaid tax liabilities. Personal liability notices can only be used where, in the opinion of HMRC, the non-payment of PAYE/National Insurance contributions is the result of serious neglect by an officer of the company or an act of fraud. It is not only company directors who can be made personally liable for the losses; senior managers and shadow directors can also be responsible for picking up the bill.
It is not the intention of HMRC to penalise the directors and officers of companies that are genuinely struggling to meet their financial obligations. Instead, they focus their attentions on cases of serious neglect, where it can be established that a company which was not maintaining its PAYE/National Insurance contributions was making significant or regular payments to:
o Connected companies
o Other creditors
o The directors of the company
Before issuing a personal liability notice, HMRC will conduct an investigation into the company and invite the officers to explain why the PAYE/National Insurance payments were not made. The investigators will look closely at the books and the records of the company to ascertain the extent to which each of the officers was responsible for the non-payment. Once a PLN has been issued, the recipient(s) can appeal to the Finance and Tax Tribunal.
There are other situations when the officers of a company can be held personally liable for the company’s debts, such as when they have knowingly traded despite being insolvent. In this case, the ‘veil of corporation’ can be lifted and the directors of the company can be made liable for creditor losses incurred during this time.
What are the consequences of a PLN?
The consequences for an individual served with a personal liability notice can be extremely serious. The PLN will usually demand the payment of a proportion of the unpaid PAYE/National Insurance debt which is allocated in line with the HMRC’s assessment of what it believes the officer’s share of the liability for the debt to be i.e. 20 percent, 50 percent, 80 percent etc. However, the PLN may cover the whole of the company’s unpaid PAYE/National Insurance debt, together with penalties and interest, which can add up to a substantial sum.
The personal liability notice will state the amount due along with statutory interest, which is currently 8 percent per annum. This will continue to run for the date of the notice. If the PLN is unpaid, the usual legal processes to recover the debt can then commence.
How can we help?
A PLN will rarely have come out of the blue and will often follow a string of HMRC threats or correspondence regarding PAYE, NIC and or VAT. If you have been threatened with HMRC legal action or are subject to a PLN enquiry then we strongly advise you to seek specialist advice at your earliest opportunity. The engagement of a professional early on in the process will help you capitalise on your opportunity to make representations to HMRC. We have been involved in cases where HMRC have either revised their assessment of a company officer’s culpability or withdrawn the personal liability notice altogether.
For more information about how we can help you with business tax issues, please get in touch with our team of experienced turnaround practitioners today on 08000 746 757.