In the last couple of years we’ve seen an increase in the number of HMRC Personal Liability Notices being issued, so we thought it would be advantageous to take a closer look at why they are being issued, what happens during an HMRC investigation, and your right of appeal.
What is an HMRC Personal Liability Notice (PLN)?
The Personal Liability Notice was introduced by Section 64 of the Social Security Act 1998 and came into effect on the 6th April 2009. The system was implemented by HMRC as a method of tackling and deterring directors of limited companies from abusing the National Insurance system and to reduce the number of abuses and subsequent losses to the public purse.
Notices are issued by the HMRC when there is sufficient evidence to show that a company’s failure to pay the correct level of National Insurance contributions was due to the neglect or fraud of an officer of the company.
The Personal Liability Notice covers all National Insurance contributions payable by the company for its employees and its directors. This includes:
- Employers and employees contributions
- Class 1A and 1B contributions
- Interest added to the unpaid contributions
- Penalties added to the unpaid contributions
The Personal Liability Notice makes an individual personally liable for the National Insurance contributions unpaid by the company and specified in the notice.
Who are Personal Liability Notices (PLN’s) issued by?
Personal Liability Notices are issued by a specialist HMRC investigation team who are based in London but cover the whole of the UK.
They are a specialist team of investigators with specialist skills and experience in this particular area.
When Might a Company Receive a Personal Liability Notice?
A company director will only receive a Personal Liability Notice for some of the following reasons:
- If HMRC believes he or she has intentionally failed to pay the amount owed
- Where HMRC feels there has been an attempt to commit fraud or some other serious offence.
- Where the company has preferentially paid company particular creditors, connected parties or its own directors in preference to tax liabilities
- Where company officers have a history of tax compliance failure with other companies
- Where there is evidence or suspicion of a phoenix company created to escape tax liabilities from a former business
It’s not just the company directors who can be made personally liable for the unpaid contributions. Officers of the company, such as senior managers and shadow directors, can also be made to pay.
HMRC will usually only issue a PLN if it believes there is a good chance of recovering the debt.
When will HMRC launch an Investigation?
A company is statutorily obliged to pay PAYE and Class 1 National Insurance Contributions to HMRC within 14 days of the end of the month in which the deductions were made (or 17 days if the company pays electronically). If the correct amount of contributions is not paid, HMRC has the power to recover those contributions, plus any interest and penalties, for the directors or other officers of the company.
HMRC will generally only commence a Personal Liability Notice investigation where they believe the lack of payment results from the fraud or neglect of an individual who is an ‘officer’ (e.g. director, manager or secretary) of the company, and they expect to be able to recover all or a significant proportion of the unpaid contributions from one or all of the officers involved.
During an HMRC Personal Liability Notice enquiry, an inspector from HMRC will:
- Examine the company’s books and records;
- Invite representations from the company’s officers to explain why the failure to pay took place;
- Determine the facts and circumstances surrounding the failure to pay to establish grounds on which to issue a Personal Liability Notice;
- Consider the extent of the neglect on the part of each of the company’s officers;
- Seek to ‘fairly’ and ‘reasonably’ apportion the debt between company officers relative to the part each played in the negligence or fraud;
- Consider and respond to representations from the company’s officers with respect to the underpayment of National Insurance contributions.
Will HMRC take Representations into Account?
The HMRC inspectors will consider and respond to representations made individually or as a group. In the majority of cases, HMRC will take the representations of officers into account if they accept some or all of the responsibility for failing to make the correct payments. A voluntary settlement may then be reached without a Personal Liability Notice being issued.
If the officers involved in the investigation do not accept or dispute their liability for the underpayment, representations can be made to negotiate a NIL settlement.
There is no statutory obligation to cooperate with a Personal Liability Notice enquiry, but if you don’t cooperate, you will lose your opportunity to make representations and negotiate with HMRC.
What if the company is in liquidation?
If the company is in liquidation or undergoing a company rescue procedure, HMRC inspectors will ask the liquidator or official receiver for access to the company’s books. They will use this information to make a decision as to whether to issue a Personal Liability Notice.
Can you Challenge a Personal Liability Notice?
HMRC will consider any representations made by the officers of a company when issuing a Personal Liability Notice. Ideally, any negotiations with HMRC will take place before the notice has been issued. Once the PLN has been issued, it is then subject to an appeal process before the Tax Tribunal.
In most cases, HMRC will take a company’s representations into account and agree to a meeting.
At this point, if the company officers are willing take some of the responsibility, it is possible for a settlement to be negotiated. If the directors are not willing to accept responsibility and continue to dispute the notice, a negotiation can take place on the basis of securing a NIL settlement.
There is no statutory obligation to cooperate with a Personal Liability Notice enquiry. However, if you believe you have acted honestly and ethically, you will lose your opportunity to negotiate with HMRC if you fail to cooperate.
If you or your company are receiving HMRC threats the call 0800 074 6757 to speak to someone who can help.We are some of the UK’s most experienced meditators in HMRC Tax problems.