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 team of HMRC investigators 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 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.
What Happens During the Investigation?
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.
Do you have to cooperate with HMRC investigators?
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 appeal the HMRC decision?
If you are unable to negotiate with HMRC and a Personal Liability Notice (PLN) is issued, you will be able to appeal this decision before the Tax Tribunal. It is always best to have negotiated with HMRC before the Personal Liability Notice was issued.
We have seen a definite increase in the use of PLNs against errant or misinformed directors particularly in cash related businesses such as restaurants and takeaways. HMRC may even suggest you seek insolvency advice and consider closing your company via liquidation. 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.