Generally speaking, the incorporation of a business means that the directors cannot be held personally liable for any of the debts of the limited company: including unpaid Corporation Tax. However, a Personal Liability Notice allows HMRC to get the money from the directors in certain circumstances.
If a company goes into liquidation owing money to HM Revenue and Customs (e.g. Corporation Tax), then in most cases the taxman cannot pursue the individual directors for the money. The protection of limited liability status is one of the key reasons people incorporate their business. The company and its owners and directors are generally treated as separate legal entities. But there are certain instances when HMRC can collect company debts from the directors.
One of these is the Personal Liability Notice (PLN) provisions of Section 64 of the Social Security Administration Act 1998. A PLN gives the tax authority power to collect unpaid National Insurance Contributions (NIC) from the people running the business, in certain situations. A PLN can be issued to a relevant individual (rather than the company) where NIC is not paid to HMRC due to the fraud or neglect of that director, manager, or company secretary. The individual becomes personally liable for the company’s unpaid NIC, plus interest and penalties. Putting the company into liquidation does not restrict HMRC from issuing PLNs to the company officers.
Personal Liability Notices are usually issued where NIC is unpaid and:
- HMRC believes this failure was attributable to serious neglect or fraud;
- Other company tax liabilities (not just NIC) have consistently been unpaid or paid late;
- There were preferential payments to creditors; particularly where that involves the directors; or shareholders; or connected parties. For example, voting the directors a bonus and paying them the net amount, but not paying the PAYE or NIC over to HMRC.
- The directors or shareholders have a poor tax compliance history: including with previous companies.
- There is a history of so-called “phoenixism”.
HMRC doesn’t generally issue PLNs where NIC is unpaid in cases where the business genuinely fails and the directors have acted reasonably and honestly with regard to tax compliance.
PLNs can be challenged in the normal way by negotiation: supplying all supporting reasoning and evidence to HMRC. If that is not successful, then an appeal can be made to the Tax Tribunal.
How Can Lynam Tax Dispute Experts Help Me?
The taxman uses specialist teams to deal with Personal Liability Notices, and Phoenix company investigations. Lynam Tax Dispute Specialists have decades of experience in handling contentious tax enquiries, and can assist taxpayers and their accountants with the process; in order to achieve the optimum results.
*If you need help with a difficult tax dispute or a contentious tax appeal call now for a confidential and no obligation discussion –
Paul Lynam: 0845 643 9997
Andrew Nutbrown: 07718 778710