The UK Government has pledged to provide additional funds of £79 million over the next five years to support HM Revenue & Customs in addressing compliance risks amongst wealthy taxpayers and combating tax fraud. In response, HMRC is utilising its vast array of powers to hold Company Officers personally liable for taxes due and penalties associated with tax evasion or fraud.
HMRC is particularly focused on certain business sectors, including importers, exporters, and employment services businesses, and has the ability to shift tax liability from a corporate entity to a Company Officer in certain circumstances. Here are some of the key powers that HMRC is using to achieve this:
National Insurance Contributions (NICs)
A Personal Liability Notice (PLN) can be issued to a Company Officer where a Company has not paid its NICs, and the failure to do so appears to be the result of fraud or neglect by a Company Officer.
Value Added Tax (VAT)
HMRC can issue a notice to a Company Officer where a Company is liable to a penalty for a transaction related to VAT fraud, and the liability is attributable to a Company Officer. The Company Officer is liable to pay the portion of the penalty specified in the notice.
Pay as You Earn (PAYE)
In tax avoidance and evasion cases, HMRC may issue a joint liability notice where a Company has entered into tax avoidance arrangements or engaged in tax evasive conduct, has entered into an insolvency procedure or is at serious risk of doing so, and the individual to whom the notice is issued was responsible for the company’s involvement in the avoidance or evasion or received a benefit from it. The individual must have been a Company Officer at the time.
Schedule 24 Finance Act 2007 Penalty
If a Company Officer is responsible for a careless or deliberate inaccuracy in a tax return, both the officer and the company are jointly liable for the penalty.
Other Circumstances of Personal Liability
If a Company goes into liquidation or administration, a Company Officer may also face proceedings under the Insolvency Act 1986 or the Company Directors Disqualification Act 1986. If the court determines that a director failed to take every possible step to avoid further loss to a company’s assets and creditors, it can order the director to make an appropriate contribution to the company’s assets. Additionally, if a company director’s conduct is deemed unfit or if they fail to meet their legal responsibilities, they may face Directors Disqualification proceedings, which can lead to disqualification and a compensation order for the amount of loss. In a typical year about 1,000 – 2,000 directors are banned, out of about 100,000 whose companies go into formal insolvency.
While HMRC is increasingly using these powers to combat fraud and noncompliance, they each have their limits. Seeking proper advice is critical to avoid or minimise personal liability. The vast majority of company directors do not have to worry, even if their company is going into formal insolvency, it’s only those who set out with the wrong intentions that do.