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16 Oct 2015

Debt Recovery

Directors Beware! HMRC is increasingly pursuing officers of companies personally for payment of company debts, even when the company is insolvent

A limited company’s failure to pay national insurance contributions (“NICs”) and Value Added Tax (“VAT”) can be attributed to neglect on the part of the company’s officer/s, making them personally liable for all or part of the monies HMRC deem to be due based on their calculations after analysis of the company’s books and processes, often following surprise visits.  Businesses that regularly deal with cash, such as restaurants and takeaways, are particularly susceptible to challenge from HMRC. “Officers” of a company include directors, company secretaries, shadow and de facto directors, and managers.

Why does HMRC pursue company officers personally?

Often officers of companies believe that they can “hide” behind the limited company as a separate legal entity to avoid personal payment. Making officers personally liable for company debts in certain circumstances is a very powerful method of:

  1. Clawing back more money for the Government;
  1. Ensuring that HMRC debts are paid as a preference; and
  1. Deterring company officers from abusing their position.

What evidence is needed?

Personal Liability Notices are issued by HMRC when there is sufficient evidence to show that a company’s failure to pay the correct level of NICs was due to the neglect or fraud of an officer of the company. If a company is in liquidation, this may not stop HMRC investigating. HMRC inspectors can simply ask the liquidator or official receiver for access to the company’s books.

Further, personally liability may arise for the failure to pay VAT where:

  1. The individual does any act or omits to take any action for the purposes of evading VAT; and
  2. This was done deliberately.

In order for HMRC to pursue an individual personally for non-payment of VAT, the relevant company must be insolvent or it is suspected that the company may soon become insolvent.

Will HMRC take representations into account?

Yes, HMRC will always listen to submissions made by an officer of a company and consider any evidence put before it.

Are you in difficulty with HMRC?

It is best to negotiate early with HMRC to see if a settlement can be reached before formal action is taken. HMRC do offer a formal review of their decisions and that offer should be accepted. It is also possible to appeal HMRC’s decision before the Tax Tribunal as a last resort.

For further information, advice on negotiating with HMRC, or representation at appeals please contact Ben Jenkins, Associate Solicitor in our Dispute Resolution Department, on 01633 760675 or email jenkinsb@hevans.com

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