In practice where an accountant makes a mistake that leads to the company not paying National Insurance Contributions to HMRC, it is unlikely that HMRC will issue a Personal Liability Notice toothat director unless they have proof that there was serious negligence involved.

If HMRC has issued a Personal Liability Notice, it is likely to be because they have decided that there has been serious negligence on the part of the Director.

When is a Personal Liability Notice Issued?

A Personal Liability Notice can be issued where a company has failed to pay its National Insurance Contributions to HMRC at the prescribed time, and that failure is, on the balance of probabilities, due to the fraud or negligence of an officer of the company. The officer is referred to as a culpable officer. The Personal Liability will specify the amount of National Insurance Contributions for which the culpable officer is liable.

An officer is a director, manager, secretary or similar officer, or a shareholder acting in a management capacity for those companies run by their shareholders. An accountant is unlikely to fall within the definition of an officer unless it can be established that they substantially managed the affairs of the company.

Accounts are Unlikely to be Held Culpable

As the accountant is not likely to fall within the remit of the Personal Liability Notice legislation, HMRC will then look to see if there are any officers within the company who are culpable officers. In this case, it could be a director of the company.

It’s important to note that the Personal Liability cannot be issued to any officer of the company, it has to be a culpable officer. An officer would be a culpable officer if the non-payment of National Insurance Contributions arose from their fraudulent or negligent actions. Here, if the mistake was made by the accountant, it’s unlikely that a director could be said to have taken fraudulent actions, so the question of whether they should be liable will rest on whether they were negligent.

Is my Accountant guilty of Professional Negligence?

Negligence is taken to have its common meaning – so where someone does something that the reasonable man would not do or omits to do something that the reasonable man would do. The guidance states that the reasonable man would ensure that the company pays the National Insurance Contributions on time. On the face of it then, a Director who didn’t ensure the accountant paid HMRC the National Insurance Contributions would be negligent.

HMRC have issued guidance, however, stating that a Personal Liability Notice will only be issued where they believe the failure to pay was attributable to more serious levels of neglect. The examples they give of serious neglect are a persistent failure to pay National Insurance Contributions or where the company is making significant payments to other creditors, connected persons or directors themselves. They will also take into account whether the officer has been involved with a company that hasn’t complied with PAYE/ NIC obligations in the past.  Whether or not this is true for any particular director will completely depend on the facts of the case.

Tax Investigations

If HMRC does decide to proceed, they will launch an investigation into the company – directors have an opportunity to make representations to them as part of this investigation. Any director who believes that the non-payment was due to an accountant’s error should use this opportunity to present their case to HMRC.

If after the investigation, HMRC decides to issue a Personal Liability Notice to a director, the director can appeal the decision on the basis that the failure to pay the National Insurance Contributions due was not the result of his or her fraud or neglect. Again, whether this appeal is successful will depend on the facts of the case.

Overall, it is unlikely that HMRC will issue a Personal Liability Notice in situations where the non-payment has arisen from an accountant’s mistake, but they may do so if they think there has been serious negligence on the part of the director. The director involved can appeal the Personal Liability Notice if they do not think they have been seriously negligent.

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