Personal Liability Notices
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 the debt getting worse, 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 and can mean no recovery by HMRC.
HMRC have various powers to continue to recover some of their losses and to prevent a repeat of these events.
For companies set up by the same directors, security against VAT arrears can be sought from that company, where it is suspected that VAT will again go unpaid by the same directors acting in a similar fashion. Please click here for more information on such requirements, which are primarily intended to prevent such arrears being repeated.
Alternatively, HMRC can issue Accelerated Payment Notices where tax schemes are in use and there is evidence of an undeclared tax liability disguised by the tax scheme or which fall within the general Anti-Abuse provisions.
Where loans are used to avoid income tax, various rules on different types of loan have sought to charge such loans to prevent this practice, which can in certain circumstances lead to a transfer of the liability to the recipient employee.
However, where there is 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 can only be sought for unpaid PAYE and 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, although we suggest you also review our page which deals with Compensation Orders in this respect.
The Personal Liability Notice will also add interest (at the rate of 8% per annum, as of writing) and this could be a large sum for a director to be required to pay (especially as it may not extend to their personal income, but instead taxes on the personal income of all of the company’s employees).
Additionally, this sum could be further inflated where the company is considered liable for PAYE/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 directors without officially having been appointed as directors, 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.
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 PAYE/NIC liabilities, the periods addressed and the amounts 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 to provide representations on the evidence provided and it is vital that upon receipt legal advice is immediately sought.
At Francis Wilks & Jones we can assist you in providing such representations and negotiating with HMRC.
Please call any member of our Tax Disputes Team for your consultation now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.