Personal Liability Notices (PLN)
Personal Liability Notices are a tool used by HMRC for specific instances of tax avoidance. In this article, we’ll explain how they’re used, the criteria HMRC follows in issuing them, and what they mean for directors and business owners.
What is a Personal Liability Notice (PLN)?
A PLN is an HMRC tool to hold directors personally accountable for their company’s unpaid National Insurance contributions, especially in cases of fraud or negligence. It shifts liability from the company to the individual, exposing personal assets to risk.
What does a Personal Liability Notice mean for the recipient?
Receiving a Personal Liability Notice (PLN) from HMRC is a serious matter. It means that you are personally liable for National Insurance contributions that your company failed to pay. This responsibility goes beyond the company’s debts, which could result in personal financial penalties and the requirement to pay the outstanding debt.
The PLN will state the total amount you owe, including any interest and penalties. It is important to take action immediately after receiving a PLN. Ignoring it could result in legal action to recover the debt, which could target your personal finances directly.
Additionally, a PLN can damage your professional reputation. It could make it difficult to be a director or hold other official positions in businesses, which could harm your professional credibility and standing. Therefore, it is essential to understand the seriousness of a PLN and take appropriate action.
When Might a Company Receive a Personal Liability Notice?
HMRC may issue a Personal Liability Notice (PLN) to a company director or officer under certain circumstances. These include:
- Deliberate failure to pay the company’s National Insurance contributions (NICs).
- Engaging in fraudulent activities or other serious offences concerning NICs.
- Prioritising payments to certain creditors, connected parties, or directors over HMRC obligations.
- A track record of tax compliance failures in other companies they were involved with.
- Establishing a ‘phoenix company’ (new company from the ashes of the old) to avoid tax liabilities incurred by a previous business.
HMRC typically issues a PLN when there is a reasonable prospect of recovering the owed debt. The decision to issue a PLN is not taken lightly and reflects a significant level of concern regarding the individual’s conduct in managing tax obligations.
HMRC initiates a PLN investigation primarily when there is evidence suggesting a company’s failure to pay National Insurance contributions (NICs) might involve intentional neglect or fraudulent actions by company officers. Key triggers for an investigation include:
- Evidence of Non-Payment of NICs: The primary factor is a company’s failure to pay its NICs fully and punctually.
- Suspected Officer Involvement: If there are indications that company officers, such as directors or managers, may have intentionally or negligently contributed to the non-payment.
- Potential for Debt Recovery: Consideration is given to the likelihood of recovering unpaid NICs from one or more of the company officers.
During the investigation, HMRC inspectors undertake a thorough review, which includes:
- Examining Financial Records: To ascertain the circumstances leading to the non-payment.
- Interviewing Company Officers: Understanding their perspective and reasons behind the NICs not being paid.
- Assessing Officer Conduct: Evaluating the extent of each officer’s role and whether there was any neglect or fraudulent intent.
- Considering Officer Responses: Reviewing and responding to any arguments or explanations provided by the company officers.
A PLN is issued only after HMRC is convinced of personal responsibility by the company officers for the unpaid NICs. This decision is made after a meticulous analysis of all gathered information, ensuring that PLNs are reserved for cases where there is clear evidence of significant non-compliance.
Will HMRC take Representations into Account?
HMRC will consider and respond to representations made by company officers, either individually or as a group. Most of the time, HMRC will take into account the representations of officers if they accept some or all of the responsibility for failing to make the correct payments. This may result in a voluntary settlement without the need for a Personal Liability Notice.
If the officers involved in the investigation do not accept responsibility for the underpayment, they can still make representations to negotiate a NIL settlement (meaning an agreement where they are found not liable for the debt.).
It is not legally required to cooperate with a Personal Liability Notice inquiry, but if you do not cooperate, you will lose the chance to make representations and negotiate with HMRC.
If the company is in liquidation or undergoing a company rescue procedure, HMRC inspectors will ask the liquidator or official receiver to provide access to the company’s books. They will use this information to decide whether to issue a Personal Liability Notice.
Can you Challenge a Personal Liability Notice?
HMRC will consider any representations made by the officers of a company when issuing a Personal Liability Notice. Ideally, any negotiations with HMRC will take place before the notice has been issued. Once the PLN has been issued, it is then subject to an appeal process before the Tax Tribunal.
In most cases, HMRC will take a company’s representations into account and agree to a meeting.
At this point, if the company officers are willing take some of the responsibility, it is possible for a settlement to be negotiated. If the directors are not willing to accept responsibility and continue to dispute the notice, a negotiation can take place on the basis of securing a NIL settlement.
There is no statutory obligation to cooperate with a Personal Liability Notice enquiry. However, if you believe you have acted honestly and ethically, you will lose your opportunity to negotiate with HMRC if you fail to cooperate.
If you or your company are receiving HMRC threats the call 0800 074 6757 to speak to someone who can help.We are some of the UK’s most experienced meditators in HMRC Tax problems.