If you are an individual facing an HMRC personal liability notice - it is vital to take early legal advice. They can be defended or negotiated downwards. But expert help is needed to to this. Our team can provide all the help you need.
Where a company is unable to pay its tax liabilities, HMRC will usually seek enforcement of the outstanding debt with a view to both preventing further bad debt, to enforce payment or to prevent a repetition of the same pattern of behaviour from businesses and their owners. This often results in the company being placed into liquidation which can mean no recovery by HMRC.
HMRC have various powers which:
- enable HMRC to recover some of their losses from individuals where a Company cannot pay; and
- enable HMRC to take steps to limit the risk of further bad debt
For new companies set up by directors of previous failed companies, security against VAT and PAYE arrears can be requested from the new company, where it is suspected that VAT or PAYE will again go unpaid by the same directors acting in a similar fashion. Please click here for more information on HMRC’s VAT or PAYE Notice of Requirements (also known as VAT or PAYE Security Notices).
Where a disguised remuneration scheme has been used by a Company, HMRC can transfer the liability for a company’s PAYE to an individual who participated in the scheme. Please click here for more information on HMRC’s options where a disguised remuneration scheme is in use.
Where there is however, no tax scheme and the company has been placed into an insolvency process, HMRC’s only remaining option to recover lost monies may be by issuing a personal liability notice.
What is repayable under a personal liability notice?
A Personal Liability Notice is a notice issued to an individual transferring a company’s liability for unpaid National Insurance Contributions, where the recipient was responsible for such non-payment. It cannot be used for recovering VAT, Corporation Tax or any other taxes.
- the personal liability notice will add interest and the amounts requested are often significant;
- the sum is likely to have been calculated based on the unpaid National Insurance Contributions of all company employees and not just on the income of the individual in receipt of the notice;
- additionally, the sum claimed by HMRC can be further inflated where the company is considered liable for NICs for any contractors falling within HMRC’s rules on IR35.
Who is liable to pay a personal liability notice?
Primarily, it is the directors of the company, although it extends to anyone who HMRC consider acted in the management of the company’s affairs. This could, especially for a small company, include shareholders.
Often it is the case that individuals act as a director without officially having been appointed as a director, a role commonly referred to as de facto directors. Alternatively, third parties (often shareholders) may appoint directors, who act on the appointees instructions, and in such circumstances the third party will be considered a shadow director.
Anyone acting in the company’s management may be subject to a personal liability notice, including (but not limited to) de facto and shadow directors.
What if you cannot pay a personal liability notice
Given the significant sums that a personal liability notice can request, it is important that early advice is taken regarding the options available, the risks and steps that can be taken to mitigate those risks.
Notification of an intention to issue a personal liability notice.
Usually you will receive an extensive letter from HMRC’s Fraud Investigation Service with enquiries before any decision to impose a personal liability notice is made.
Such enquiries will deal with;
- the company’s failure to pay NIC liabilities;
- the period of time HMRC is concerned with;
- the amount unpaid;
- the evidence of the recipient acting in the management of the company;
- any history of previous companies which show similar patterns of behaviour and what part of the liability is attributed to that individual.
This letter will provide an opportunity for representations on the evidence provided by HMRC and for an individual to explain why National Insurance Contributions were not paid. Where HMRC accept these reasons, a personal liability notice will not be issued. It is therefore vital that upon receipt of notification of an intention to issue a notice, legal advice is immediately sought.
At Francis Wilks & Jones, we have considerable experience of individuals faced with a Personal Liability Notice and associated claims (for example, bankruptcy petitions by HMRC or attempts to obtain an order for director disqualification). Should you require any assistance, please contact our Director Services team who can discuss such matters with you.