Understanding and Challenging an HMRC Personal Liability Notice
Current legislation demands that employers pay the PAYE and National Insurance Contributions due on an employer’s earnings to HMRC. These payments must be made by the 22nd of the month (or the 19th if you’re paying by post) for the previous tax month. Failure to do so could lead to a penalty. The consequence of failing to pay PAYE may result in a personal liability notice and understanding and challenging an HMRC personal liability notice may be necessary.
Your PAYE bill may include:
• Employee income tax deductions;
• Class 1 and 1B National insurance Contributions;
• Student loan repayments;
• Construction Industry Scheme (CIS) deductions.
As well as the right to apply penalties to payments that are not received by the deadline, HMRC can also issue a Personal Liability Notice (PLN). This makes the company directors personally liable for unpaid company contributions. The purpose of this legislation is to provide HMRC with a timely and cost effective method of recovering monies they are owed. It also acts as an excellent deterrent to future abuses.
When might a company receive a PLN?
A company director will only receive a Personal Liability Notice if HMRC believes he or she has intentionally failed to pay the amount owed. This power arises where HMRC feels there has been an attempt to commit fraud or some other serious offense. In this case, it will pursue the company officer or director using the full extent of the law. Typically this process will follow the compulsory liquidation (Winding up) of the company by HMRC.
The PLN legislation only applies to National Insurance Contributions and the late payment interest and penalties that have arisen from them. Corporation tax and VAT payments cannot be pursued in this way. Furthermore, HMRC does not intend to penalise directors of companies that are genuinely struggling. For this reason, it will generally only consider issuing a PLN in cases where the company was making significant payments to:
• Other creditors
• Connected companies
• Themselves as directors
It’s not just the company directors who can be made personally liable for the unpaid contributions. Officers of the company, such as senior managers and shadow directors, can also be made to pay. HMRC will usually only issue a PLN if it believes there is a good chance of recovering the debt. However, a PLN can also be issued in cases where the officers of a company have a history of phoenixism.
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.
What if you can’t reach an agreement with HMRC?
If HMRC believes the Personal Liability Notice should be issued and enforced, each ‘culpable’ officer will be sent a notice detailing how HMRC arrived at the decision, and how much they are personally expected to pay.
What if the company is in liquidation?
If a PLN decision is being made about a company in liquidation, HMRC will ask the liquidator or official receiver for the company’s books and records. It will then make its decision as to whether a Personal Liability Notice should be issued.
How can we help?
We have helped countless directors ease their concerns about tax arrears and make representations to HMRC. If you’ve been threatened with a Personal Liability Notice, please get in touch today for a free, no-obligation consultation.
Written by: Mike Smith