The general answer to this question is no – there is normally a distinct separation between a company’s debts and those of its directors and shareholders.
Because of this distinction, a company tax debt will not be transferred to you as a personal tax debt. However, you can become personally liable to HMRC for money if your company can’t or won’t pay certain company taxes. The unpaid taxes are still company taxes but you can be held personally liable to pay them in very specific circumstances.
The two main ways in which this can happen are first if HMRC issue a Personal Liability Notice in respect of unpaid Class 1 National Insurance Contributions, or secondly if the company was trading while it was insolvent and ran up tax debts with HMRC for which the director may be held to be personally liable.
About Personal Liability Notices
Personal Liability Notices are notices issued by HMRC which function to make a “culpable officer” of that company personally liable for a company’s unpaid Class 1 National Insurance Contributions.
Each notice will be addressed to a specific culpable officer and will tell them the amount of debt that they are being held personally liable for. The culpable officer will be liable for the debt in addition to the company rather than instead of, so if the company pays the debt, the culpable officer does not have to do so as well.
While this might sound quite frightening, HMRC will only issue Personal Liability Notices in situations where the non-payment of the National Insurance Contributions are the result of fraudulent or negligent actions by the officers of the company. The legislation is not there to punish struggling businesses or companies that are having a genuinely difficult time paying their taxes, rather it is there to target cases where there has been deliberate or severely negligent behaviour on the part of the culpable officer.
Debt’s Accumulated while Insolvent
The other situation where a director or other company officer may be held liable for company debts is if the debts were accumulated when the company was insolvent. When a company enters insolvency, the duties of the directors move from acting in the best interests of the company (and its shareholders) to acting in the best interests of the company’s creditors.
The rules around this area are complex, but directors and officers of insolvent companies have to be very careful if they continue to trade as it can result in them being held personally liable for any debts accumulated after the company became insolvent. The debts for which they can be held personally liable will include unpaid taxes to HMRC.
Again, it’s important to note that although the director or officer may be held personally liable for those debts, it does not directly affect their personal taxes per se – the debts are still company debts for which the director is being held additionally liable (this is called joint and several liabilities), it does not solely become their tax debt.
Need help or advice?
If your company is having problems paying HMRC you should take action. HMRC take unpaid tax debts very seriously and will take appropriate actions to recover their money. We can offer advice and help you work out the best way to resolve this difficult situation. Call us on 08000 746 757 or use the live chat function on your screen for a no-obligation, free consultation.