Mark McLaughlin warns that company owners cannot necessarily walk away from unpaid tax liabilities without possible repercussions.
Many businesses are struggling in a difficult financial climate; sadly, some will ultimately fail. This could result in outstanding tax liabilities owed to HM Revenue and Customs (HMRC).
However, the termination of a company with unpaid tax debts is not necessarily the end of the story in some cases.
Back on the hook?
For example, HMRC could make company directors (or members of a limited liability partnership) jointly and severally liable for the company’s tax liabilities in certain circumstances involving insolvency or potential insolvency that the government had considered unacceptable (FA 2020, Sch 13).
HMRC may give a ‘joint liability notice’ to individuals (within statutory time limits) if a company liability arises in any of the following circumstances:
- Tax avoidance and tax evasion cases.
- Repeated insolvency and tax evasion cases.
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Cases involving penalty for facilitating avoidance or evasion.
However, this HMRC power is subject to certain safeguards. For example, there is a right of review against notices given by HMRC, and a right of appeal to the First-tier Tribunal (FTT) against notices, within statutory time limits. Furthermore, HMRC has previously confirmed that notices under the repeated insolvency provisions will not be used against those such as ‘turnaround specialists’ whose relevant connection with companies is part of a genuine attempt to save the company from failing. A ‘tax liability’ for these purposes means any amount payable to HMRC.
Unpaid NICs
There are separate provisions for National Insurance contributions (NICs) purposes (SSAA 1992, s 121C). Those provisions allow HMRC to issue a ‘personal liability notice’ broadly where a company’s unpaid NICs appear to be attributable to ‘fraud or neglect’ by one or more individuals who were company officers at the time.
For example, in Eames v Revenue and Customs [2022] UKFTT 119 (TC), the appellant was the sole director and shareholder of a company (‘A1RP’), which entered compulsory liquidation in July 2017, owing NICs to HMRC. The appellant had previously been the sole director and shareholder of two other companies, which had gone into liquidation owing PAYE and NICs. He was disqualified from acting as a director for six years in February 2019 following the liquidation of one company. HMRC issued a personal liability notice (PLN) to the appellant in March 2019. He appealed.
The FTT was not satisfied that the appellant had mitigated the substantial risks involved with the business of A1RP by comparison to the business model which failed in his previous companies. The appellant made the positive choice to pay himself out of NICs funds withheld from staff payments, which he knew were owed to HMRC. A prudent and reasonable person would not have prioritised payments in that way. Accordingly, the FTT concluded that the failure of A1RP to account for NICs was due to the appellant’s neglect.
Practical tip
The above are only two provisions out of an armoury of statutory ‘weapons’ available to HMRC to collect unpaid tax liabilities from individuals. For example, where HMRC has made a formal ‘regulation 80’ determination against a company to recover unpaid tax, and the tax is not paid within 30 days, HMRC may arrange for the tax to be recovered from the employee in certain circumstances, including where HMRC considers that the employee in respect of whose relevant payments the determination was made received those payments knowing that the employer wilfully failed to deduct the tax therefrom (SI 2003/2682, reg 81(2)).
