One of the main reasons people choose to incorporate their business into a limited company (Ltd) is for the extra protection this corporate structure affords the individual. Incorporation helps separate the individual owner(s) and the business financially, so the business becomes an entity in its own right.
However, Section 64 of the Social Security Administration Act 1998 gives HM Revenue & Customs the power to issue a Personal Liability Notice (PLN) to hold those behind the company personally liable in certain situations.
What is a Personal Liability Notice (PLN)?
If a director, manager or secretary of a business fails to pay National Insurance Contributions (NIC) and HM Revenue & Customs (HMRC) consider that non-payment was due to fraud or neglect, then they have the power to issue the individual with a Personal Liability Notice (PLN).
The effect of the PLN means the liability for the company’s unpaid NIC (plus interest and penalties) will transfer from the company to the director personally. Note that this applies to NIC contributions only, not PAYE deductions which haven’t been paid across.
Why would HMRC issue a Personal Liability Notice (PLN)?
The power to issue PLN notices came into force from April 2009, to address the problem of limited companies abusing the National Insurance system. Before a PLN is issued, HMRC will make enquires of those involved in the management of the company. If during their enquiries they cannot get an adequate response or find evidence to support their argument, then they can issue and enforce a PLN.
There are various reasons for a PLN to be issued;
- HMRC is of the opinion that failure to pay the tax liability was attributable to serious neglect or fraud
- Tax liabilities have consistently not been paid on time
- There have been preferential payments to creditors, connected parties or directors instead of clearing tax liabilities
- Officers of the company have a history of not complying with tax obligations with previous companies
- There is a history of non-payment of tax through “phoenix” arrangements
HMRC won’t issue a PLN to penalise Directors of a struggling company and those who have made every attempt to pay their tax contributions.
Can it be challenged?
Challenging a PLN can be a complex procedure and investigating officers will normally have strong supporting evidence as to why they have issued a PLN. It is advisable to make representations and negotiate with HMRC investigators during their initial enquiries into the company. This can help avoid a PLN being issued in the first instance.
However if a PLN is issued, the decision can be appealed before the Tax Tribunal.
What if the company is in Liquidation?
There are no restrictions on HMRC issuing a Personal Liability Notice to officers of liquidated companies. HMRC would instruct the liquidators to provide all books and records to further investigate the affairs of the company.
We hope this overview has been helpful. If you would like more information, or have a client who may need our services, please don’t hesitate to contact me on 0115 871 2921 or by email firstname.lastname@example.org.
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