Personal liability notices can be very serious for business owners and those involved in management. It is a way in which HMRC can recover unpaid NIC. But these claims can be defended. Our team is led by accountant and lawyer Stephen Downie and assisted by Andy Lynch formerly 18 years working for the investigations team at HMRC. Don't settle for second best. Call us today.
Where a company is unable to pay its tax liabilities, HMRC will usually seek enforcement of the outstanding debt with a view to
- preventing further bad debt; and
- 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:
- 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.
- Where a disguised remuneration scheme has been used, 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 otice.
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 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.
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 periods of time HMRC is concerned with;
- 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 why you say that the company’s National Insurance Contributions have not been paid. Where HMRC accept these reasons, then 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 assisting directors and business owners faced with a personal liability notice and associated claims, such as bankruptcy petitions by HMRC or attempts to obtain a directors disqualification order. Dont settle for second best. Contact our expert team today and we can help.