Personal Liability Notice (PLN) – When Can Directors be Personally Liable?

One of the main reasons people choose to incorporate their business into a limited liability company, is for the extra protection this corporate structure affords the individual.  Incorporation helps separate the individual owner(s) and the business legally and financially, so the business becomes a legal entity in its own right.

However HM Revenue & Customs have various legislative powers to issue a Personal Liability Notice (PLN) to hold those involved in the management of a company, personally liable for the company’s debts in certain situations.

What is a Personal Liability Notice (PLN)?

If a director, manager or secretary of a company fails to pay VAT, PAYE or National Insurance Contributions (NIC) deductions 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 VAT, PAYE or NIC (plus interest and penalties) will transfer from the company to the director personally.

Why Would HMRC Issue a Personal Liability Notice (PLN)?

HMRC will make enquiries 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 concerns that tax has been deliberately withheld, then it 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 payments made to creditors other than HMRC, in particular 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” companies (i.e. a history of failed companies trading in a similar manner with the same key personnel).

HMRC are unlikely to 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 process and HMRC’s investigating officers will normally have strong evidence to support the issue of 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 or others of liquidated companies. HMRC will instruct the liquidators to provide all books and records to further investigate the affairs of the company.

However, an Insolvency Practitioner as Liquidator may be in a position to provide further information to demonstrate the true position in which a company found itself once the Insolvency Practitioner has had an opportunity to review all the facts at his or her disposal.