reviewed-by
Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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24th April 2024

HMRC can hold a company director responsible for unpaid taxes, but only if it can be demonstrated that the director was negligent or fraudulent in the management of the company’s tax affairs. If the director has acted responsibly and within the law, they are protected by the limited liability structure.

The onus is on HMRC to provide evidence of misconduct such as negligence or fraud before they can pursue a director personally. Responsible management and compliance with tax obligations protect directors from personal liability.

Can HMRC hold a Company Director Responsible for Unpaid Tax?

Are Directors Liable for Limited Company HMRC Tax Debts?

Here, we detail the circumstances under which such liabilities might arise,

Negligence or Misconduct

Under UK law, directors are expected to exercise reasonable care, skill, and diligence in their duties. If HMRC can prove that directors have been negligent or engaged in misconduct in managing the company’s tax affairs, they can be held personally liable.

This is supported by the Companies Act 2006, which outlines the statutory duties of directors.

PAYE and National Insurance Contributions

The obligation to correctly administer PAYE and National Insurance is set out in the Social Security Administration Act 1992 and the Income Tax (Earnings and Pensions) Act 2003.

Failure to comply with these requirements can lead to directors being personally pursued for these debts through Personal Liability Notices issued by HMRC.

VAT Fraud

The VAT Act 1994 provides the framework for the collection and management of VAT. Directors involved in the deliberate evasion of VAT can be held personally liable.

This includes participation in or knowledge of schemes intended to fraudulently reduce VAT liabilities or illicitly reclaim VAT.

Wrongful Trading

The Insolvency Act 1986 section 214 outlines the concept of wrongful trading.

If directors allow the business to continue to trade when they know, or ought to have known, there was no reasonable prospect of avoiding insolvent liquidation, they can be personally liable for debts incurred during this period, including those owed to HMRC.

Failure to Observe Statutory Provisions

Directors are legally required to ensure compliance with all statutory provisions related to tax reporting and payment. This includes timely submission of accurate tax returns and payments as mandated by the Finance Act.

Failure in these duties can result in personal liability, as directors are ultimately responsible for the company’s adherence to tax laws.

FAQs

A Personal Liability Notice (PLN) can be issued by HMRC when there is evidence that tax liabilities have not been met due to fraud or negligence by company directors. This is especially common with unpaid PAYE, VAT, or NICs.

Yes, HMRC can target former directors if it is proven that the tax liabilities arose during their tenure and resulted from their mismanagement or neglect.

To dispute a PLN, directors should promptly gather and present evidence that they complied with tax laws or that they were not responsible for the oversight. Legal advice and an appeal to the Tax Tribunal may be necessary.

Penalties for late VAT payments can include a percentage of the unpaid tax as a fine, which increases with the amount of time the payment is overdue. Interest on the outstanding amount may also accrue.

Non-compliance with PAYE regulations can lead to severe penalties including fines, interest on unpaid taxes, and in serious cases, criminal charges against the directors.

Financial audits should be conducted annually at a minimum, but more frequent reviews might be necessary depending on the size and complexity of the business operations.

New directors should familiarise themselves with all relevant tax responsibilities by consulting HMRC’s guidelines, seeking advice from financial experts, and potentially attending workshops or seminars on financial compliance.

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