Can a Personal Liability Notice be issued if a company is insolvent?
Personal liability notices, known as PLN’s, are being used increasingly by HMRC to facilitate recovery of National Insurance contribution debts where HMRC feels that directors are hiding behind the status of the limited company as a separate legal entity. Insolvency will highlight the issue somewhat, and the introduction of a liquidator may expose criminal activity.
HMRC can force the company closure by using a Winding up Petition to compulsory liquidate the company. This legal action allows the director’s actions to be investigated thoroughly by the Official Receiver.
How Does HMRC Gather Evidence for PLN’s During a Company Insolvency?
In a normal scenario, HMRC investigators liaise directly with company officers to obtain the necessary access to financial records, so they assess the likelihood of serious neglect or fraud. During an insolvency procedure, HMRC will simply deal with the liquidator or official receiver.
Personal Liability Notices and the Social Security Administration Act 1992
Section 121C of the Social Security Administration Act 1992 describes the Inland Revenue’s right to issue a PLN ‘whenever contributions are unpaid because of the neglect of a culpable officer.’ Since neglect is a difficult thing to prove in law, this means HMRC only issue PLN’s where there is evidence of persistent failure to pay PAYE/NIC over a period and especially where the director’s remuneration has continued to be paid. HMRC may also examine whether the director has been previously involved with companies that haven’t paid their taxes.
Author: Mike Smith