HMRC Turn Up the Heat on Directors

18th November 2010 13:20

In my September blog I spoke about the HMRC getting tough on companies who want to enter into a time to pay agreement for arrears of PAYE, CT and VAT. It would now appear that HMRC are continuing with their drive to ensure that the losses suffered by the Government are minimised as they go on the offensive against directors of failed companies.

Where specific circumstances exist, it is not often recognised that directors can be held personal liable for arrears due to the Crown and furthermore HMRC can also impose conditions on any new business they are involved with, which can lead to severe funding issues.

The three key risks directors run if tax liabilities begin to build are:

Potential Personal Liability for PAYE/NIC

Where a company fails to pay over PAYE deductions and NI contributions because of a director’s negligence, under Section 121C of the Social Security Administration Act 1992 HMRC has the power to issue a personal liability notice (“PLN”). The effect of a PLN is to make the director personally liable for the company’s unpaid taxes.

HMRC can issue a PLN whenever contributions are unpaid because of the neglect of a culpable officer. While failure to pay contributions can obviously constitute neglect, in practice HMRC have only considered issuing a PLN in the most serious of cases where they will look at factors such as:

• any persistent failure to pay over PAYE/NIC when other payments are being made on time;
• if director(s) remuneration has continued to be paid during the period; and
• has the individual been involved with other companies which have failed to pay over taxes?

This provision has existed for many years but HMRC have rarely enforced it. In my opinion, together with the loss of its preferential status in 2003, the Crown are now starting to see increased debts as a result of failing companies and are now seeking to redress the balance but perhaps in the more serious cases of habitual default.

Deposits On New Trading

Finally, where the directors of a company which has failed owing substantial Crown debt are involved in a new business, HMRC are also increasingly making use of their powers to demand that the new business pays a deposit to cover tax that may fall due.

Disqualification

It is also worth reminding directors that significant debts due to HMRC could be construed as “trading on Crown Debts” and this is an offense under the Company Directors Disqualification Act 1986 and could lead to a person being prohibited from acting as a director for a period between 2 and 14 years.

So directors, be warned, it is clear that the Crown are no longer going to ignore the fact that some companies are using the money due to HMRC to fund their business operations and if the company fails, this could have significant personal consequences for you!

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