How does a Personal Liability Notice Differ to Being Made Personally Liable by HMRC?
Personal Liability Notices can only be issued in very restricted circumstances. They are used to pursue a company’s officers for that company’s unpaid National Insurance Contributions. For a Personal Liability Notice to be issued, HMRC has to conclude that the officer to whom the notice is issued behaved fraudulently or negligently and that behaviour caused the non-payment of the contributions by the company. Personal Liability Notices can be issued in respect of solvent or insolvent companies.
Directors can be held personally liable for a company’s debts in a broader range of circumstances. The two main ones are where the person has submitted incorrect information to HMRC that has resulted in an underpayment of tax or where the company of which the person was a director of becomes insolvent.
Penalties for Inaccurate Submissions
HMRC can hold you personally liable for a company’s penalty if you submit a return or other document to them that contains an inaccuracy and that inaccuracy results in tax being unpaid, understated or a relief being over-claimed. This power is given to HMRC under Schedule 41 of the Finance Act 2008. The inaccuracy must have arisen from careless or deliberate behaviour or the concealment of relevant information.
The legislation allows HMRC to apply a penalty for a broad range of taxes, including:
- Corporation Tax
- National Insurance Classes 1 and 4
- Pay As You Earn (PAYE)
As a company officer, you may have to pay some or all of the company’s penalty if the penalty is due to your actions and you have gained or attempted to gain from a deliberate inaccuracy.
If the company is insolvent or about to become insolvent, HMRC does not need to prove that you gained or attempted to gain personally from the inaccuracy, they just have to prove that there was an inaccuracy made by you that resulted in an underpayment of tax.
Liability for the Debts of Insolvent Companies
If a company enters into insolvency or is about to enter insolvency with unpaid tax debts outstanding, HMRC may pursue the officers of that company in certain situations. These situations are in line with the broader rules about when company directors can be personally pursued by the debtors of an insolvent company and are not just limited to HMRC.
Typically a Notice of Requirement for a Security Bond is asked for, and the director is made Jointly and Severally liable for the tax debt.
More generally, directors can be personally liable for debts incurred when they knew the company was insolvent and carried on trading. They can also be liable where they have breached their director’s duties, and this resulted in a loss for the company’s creditors (including HMRC).
Are You Being Threatened With Personal Liability by HMRC?
If you are being threatened with personal liability for company debts to HMRC, call us for free and confidential advice. Please contact us on 08000 746 757. You can also speak to one of our advisors by using the live chat button on your screen.