The main legislation that is relevant and applies to Personal Liability Notices is Section 121C of the Social Security and Administration Act 1992.
This enables HMRC to pursue unpaid National Insurance Contributions in respect of a company from directors or other officers of that company.
Companies have a statutory obligation to pay Class 1 National Insurance Contributions to HMRC within 14/17 days (depending on the method in which the NICs are paid) of the end of the month from which they were deducted from an employee’s salary.
If the National Insurance Contributions are not paid, or an incorrect amount is paid, S121C gives HMRC the right to recover the unpaid amounts from directors or other officers of the company under certain circumstances.
The legislation came into force on 6 April 1999 and can be applied to all relevant National Insurance Contributions after that date.
It’s very important to note that the directors or officers can be pursued for all unpaid National Insurance Contributions due from the company, not just those that are due in respect of themselves. The Personal Liability Notice will also cover any interest or penalties that have arisen in respect of the unpaid National Insurance Contributions.
For HMRC to be able to issue a Personal Liability Notice, they have to be satisfied that a company has not paid the National Insurance Contributions due at the right time and that failure to pay is due to the fraudulent or negligent actions of one or more “officers” of the company.
What is Negligence?
Negligence is not defined within the legislation, so it has been interpreted to have its common meaning. Case law, in particular, Blyth v Birmingham Waterworks Co, which stated that:
Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. (Blyth v Birmingham Waterworks Co, 1856).
In this case, what is expected of a reasonable man is to pay those National Insurance Contributions due to HMRC on time and in full? Arguably, any officer who does not ensure that this is done will potentially fall within the scope of the legislation. In practice, HMRC will only seek to issue a Personal Liability Notice when they believe the failure to pay was due to fraudulent intent or very serious negligence.
What is Fraudulent Behaviour?
Fraudulent behavior has no commonly defined or accepted meaning and will depend on the particular circumstances of that case.
Who is an Officer?
The legislation defines officer as meaning:
Any director, manager, secretary or another similar officer of the company, or any person purporting to act as such. This includes shadow or de facto directors; and
in a case where the affairs of the company are managed by its members, any member exercising functions of management on it or purporting to do so.
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