Did you know you could be made liable for your company's HMRC debt?
Ordinarily no. But in set circumstances we are increasingly seeing HMRC use obscure and previously rarely used powers to make directors personally liable for unpaid VAT, PAYE and NI.
HMRC have had the power to make directors personally liable or seek security deposits for over 15 years but we hardly ever saw them used. That is until recently. With the general shift in sentiment coming down hard on tax evasion we are now regularly seeing HMRC flex its considerable muscle. HMRC should not be seen as the creditor of last resort and you need to be aware of:
- Personal liability notices which can be used to make you liable for your company's unpaid national insurance due to "fraud or neglect" by an officer of the company. This applies to all unpaid national insurance contributions not just contributions deducted in respect of directors' pay.
- What exactly amounts to "fraud and neglect" is to some extent subjective but as an example a director was found to have neglected to pay HMRC where he sold the company's business and assets at fair value and ceased trading but went on to use the proceeds to repay other creditors whilst paying nothing to HMRC.
- Demands for the recovery of unpaid PAYE from any employee - but usually targeted at directors who received payments knowing that the company had deliberately failed to deduct the correct amount of PAYE. However, this is not triggered by PAYE not being paid over but rather PAYE not being deducted correctly or at all when the payroll was run.
- It is almost becoming common for HMRC to request security deposits where it suspects a director is involved in a "phoenix company" and there is a history of HMRC non compliance.
- Requests for security are usually made on the employer but where the employer is a limited liability company or a limited liability partnership security may also be required from one or more director or partner. Also HMRC can make you personally liable if you ignore a request for security and your company or LLP continues to trade. You could also receive a criminal conviction to boot.If you are unfortunate enough to receive a security request and your company already has HMRC arrears the best way to avoid having to pay it is to negotiate a time to pay agreement - but get advice first as you will already be in HMRC's bad books and must make sure it is a good one from HMRC's perspective!
Plenty to be thinking about but HMRC arrears are likely to be a sign of wider problems in the business which are always better tackled early. You don't have to face those alone. If you would like to discuss this issue further now or at any point in the future then do contact us. We are happy to have an initial confidential and charge free meeting either face to face, on or off your premises or over the telephone.
If you need assistance with business rescue or insolvency please call us on 0800 331 7417.