personal liability for directors: HMRC tightens the noose
There has been a great deal of commentary
recently on the proposed reform to the procedures governing
pre-pack administrations. One of the main objections to pre-packs
that the proposed reform is intended to address is the perception
that the directors of a failed business are able to "dump" the
business's debt and then to start the same business all over again,
debt-free, under a new company.
In reality, it will not always be this simple
for directors. Quite apart from any personal guarantees and
other personal liabilities that they may have in relation to the
failed business, directors are now receiving Personal Liability
Notices from HM Revenue & Customs (HMRC) on an increasingly
regular basis.
what is a Personal Liability Notice (PLN)?
A PLN, when sent to a director, makes him or
her personally liable for the company's unpaid PAYE deductions and
National Insurance contributions. However, HMRC may only issue
a PLN if it appears to them that the failure of the company to pay
its tax liabilities is "attributable to fraud or neglect on the
part of one or more individuals who, at the time of the fraud or
neglect, were officers" of the company.
Directors may appeal a PLN on the basis
that:
- the sum claimed in the PLN is not covered by
a relevant provision (see below)
- the failure to pay the tax liability was not
attributable to any fraud or neglect on the part of the director in
question
- the director was not an officer of the
company at the time of the alleged fraud or neglect, or
- the opinion formed by HMRC when deciding to
issue the PLN was unreasonable.
The power to issue PLNs has been available to
HMRC since 1992 (the power derives from Section 121C of the Social
Security Administration Act 1992) but we understand that PLNs are
now being used more widely than before. Accordingly, directors who
are accused of acting fraudulently or negligently by a liquidator,
an administrator or creditors generally should be aware of their
possible liability to HMRC, as well as any liability he or she may
have to the company itself (or its liquidator or
administrator). This may well mean that directors may become
unwilling to settle claims threatened against them by liquidators
or administrators unless they can also be sure that they will not
subsequently be issued with a PLN.
