Are Directors Liable for Limited Company HMRC Tax Debts?
Despite the limited liability structure, directors can find themselves personally liable under certain circumstances. This is known as “piercing the corporate veil[1]Trusted Source – Wikipedia – Coporate Veil in the UK” and can occur when HMRC believes that the director has deliberately avoided paying taxes or engaged in fraudulent or negligent behaviour.
Some specific situations where a director may be held personally liable include:
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.
Failure to Comply with PAYE and National Insurance Contributions
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.
If a director is found personally liable for unpaid tax, HMRC can take enforcement action against their personal assets, such as their home, car, or bank accounts. In serious cases, directors may also face criminal charges or be disqualified from acting as a director in the future.
FAQs
What triggers a Personal Liability Notice from HMRC?
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.
Can HMRC target previous directors for unpaid taxes?
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.
Do You Need Help?
Get in touch today and get a better understanding of your options
