Personal Liability Notice Against Company Directors

The effect of a HMRC Personal Liability Notice (PLN) is to transfer liability to one or more of a company’s officers thereby making them personally liable.

The issue of a PLN
Prior to the issue of a PLN, HMRC will normally conduct enquiries to ascertain the reasons for the failure to pay the company’s liabilities focusing on the:

• time of the default,
• amount due and how it arose,
• views of those managing the company,
• evidence of any previous history of wrong doing.

Company Officers will have the opportunity to respond.

HMRC issues a Joint Liability Notice (JLN) to each company officer who shares responsibility for a company’s specific obligation or debt. This notice outlines the terms of the liability, the total amount owed and the consequences of not fulfilling the obligation.

The notice is typically issued where individuals have shared responsibilities in a company that has been assessed for a tax liability by HMRC, resulting in their personal liability for part of the company’s debt.

A JLN will be issued to each defaulting company officer when HMRC forms the view that the company:

• evaded tax or engaged in evasive conduct,
• is insolvent or likely to become insolvent,
• was either:

1. 1. responsible for the evasive conduct or received a benefit from the evasion, or
   2. participated in or facilitated the conduct,

• has a tax liability arising from the evasive conduct, and
• tax liability, arising from the conduct, will probably not be paid.

There are two main types of PLN, one covering National Insurance Contributions (‘NICs’) and the other relating to penalties imposed relating to VAT debt.

A PLN cannot be used for recovering VAT, Corporation Tax or any other taxes.

HMRC will exercise its powers when it believes tax has been evaded as the result of fraud or neglect.

NICs are required to be deducted from an employee’s pay as part of PAYE and paid to HMRC directly by the employer. Where the employer fails to pay NICs, and HMRC believes this was due to a neglect of duty or fraud, it will hold the responsible officer(s) personally liable.

Neglect is not specifically defined, but the definition in Blyth v Birmingham Waterworks (1856) 11 Exch 781 is informative:

‘Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The defendants might be liable for negligence, if, unintentionally, they omitted to do that which a reasonable person would have done or did that which a person taking reasonable precautions would not have done.’

Accordingly, it can be assumed that where a reasonable officer of a company would have paid NICs in the relevant circumstances, HMRC will seek to hold the defaulting officer(s) liable.

• HMRC has confirmed that it will only issue a PLN for serious neglect, such as where:
• there exists prolonged non-payment of NICs,
• payments are made to other creditors, but not HMRC,
• payments due to HMRC are used to support company cashflow,
• a company is insolvent,

This list is not exhaustive and only provides some of the considerations HMRC will make to assess the severity of a company officer’s neglect.

Fraud arises from deliberate dishonest conduct which HMRC will seek to punish, particularly where a personal benefit is obtained by one or more company officers.

Company officers may be made personally liable for VAT penalties where HMRC believes there has been deliberate wrongdoing attributable to the company officer(s) in question.

The amount claimed in a PLN must be based on the original VAT Penalty issued to the Company and it cannot exceed this amount. Where a PLN is issued to more than one company officer, the combined value apportioned between the company officers must not exceed the original VAT Penalty issued to the Company.

It is common to see that a PLN for a VAT penalty will be served on the company officer at the same time or shortly after the company has received a VAT Assessment based on the Kittel Principle.

Yes, a PLN can be given for a deliberate:

• inaccuracy provided in a Tax Return or any document, and
• failure to notify HMRC of any pertinent change in liability to tax.

It is imperative that you instruct experienced tax dispute solicitors as soon as you become aware of the prospect of a PLN being issued by HMRC.

Our team can provide legal advice and guidance on the appropriate representations to make to HMRC as well as guide you through the complex appeal process. A strict time limit is applied to such matters by HMRC and therefore it is essential that you seek legal advice as soon as possible.