What does HMRC Joint and Several Liability mean?

Personal liability notices are becoming more widely used by HMRC to secure tax payments where it believes a company is insolvent or about to become insolvent and the tax it owes, usually PAYE/NI or VAT, will not be paid. This kind of personal liability is usually used to support a notice of requirement (NOR) for a security bond to be paid. In this case, the personal liability can be made on a joint and several bases, making multiple individuals liable for the debt.

Who can be made jointly and severally liable?

HMRC will ask for payment by way of a legal document called a Notice of Requirement. This will tell you:

  • How much you must pay
  • When you should pay it by
  • The accepted methods of payment

The Joint and Several Liability rules can extend to company directors, the company secretary, managers or any other individuals deemed to be in breach of the Notice Of Requirement. HMRC can pursue any party named on the NOR for the entire sum of the tax owing. It is then down to the company officers to determine their respective liability between themselves. If one company director makes the full payment, they must then pursue the other officers for their share of the liability.    

Other Cases where Joint and Several liability can Apply

The joint and several liability rule can also be used in:

  • VAT group registrations – Cases in which two or more companies apply for VAT group treatment. One company can register for VAT on behalf of the group, with all the companies in the group accounting for VAT via the registered member. If VAT is not paid in full, all group members can be made jointly and severally liable for the debt incurred.  
  • Limited liability partnerships – In a company insolvency situation, there is no protection for the individual members of a partnership as there would be in a limited company. This means all members are jointly and severally liable for the partnership’s debts.
  • Directors’ personal guarantees – If you have signed a personal guarantee on a debt you will be liable for whatever shortfall the creditor suffers in the liquidation. Where guarantees have been given by more than one guarantor, on a joint and several bases, the guarantor with the most personal assets is the one who stands to lose the most. They may then be faced with trying to recover the shares of other guarantors directly, which is not always possible if they have no personal assets left.
  • Missing trader intra-community (MTIC) fraud – The joint and several liability rule can be used by HMRC to make any companies involved in the supply chain of a MTIC fraud (or carousel fraud) liable for missing VAT payments. To be liable for the unpaid VAT, an individual must have ‘known’ or ‘had reasonable grounds to suspect’ the VAT on the supply of the goods had not been paid

Author: Mike Smith

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