Since Personal Liability Notices (PLN) were introduced in April 2009, they’ve mostly been utilised by HMRC in a bid to tackle “phoenixism”. Phoenixing is when a business which has become insolvent is put into liquidation, whilst the assets and operations are moved to a new company by the directors and management team.
There is nothing illegal or wrong in a liquidated company selling it’s assets and different governments down the years have indicated that they see it as an important way in which jobs can be preserved, since the successor company (the one that’s buys the assets of the liquidated company) will typically continue to employ some or all of the staff.
However unscrupulous directors also use the liquidation route to avoid paying taxes and trade debts, in many cases pocketing these funds themselves, while in the process harming legitimate competitor companies by undercutting them due to the fact that they do not have the same overheads (or more precisely they do, but they don’t pay them).
To tackle this phenomenon, HMRC can issue PLNs to directors they believe are operating businesses in this fashion, so that they cannot avoid paying certain liabilities owed to the public purse.
What Is A PLN?
HMRC will usually conduct an investigation if they believe that a company is trading fraudulently, and it is during these investigations that an underpayment of National Insurance Contributions (NIC) is usually uncovered.
Once it has been ascertained that NICs have been deliberately underpaid by a director, company secretary, shadow director or manager, whilst other parties including directors, creditors and family members have been paid, HMRC will issue a PLN.
A PLN only applies to National Insurance Contributions, as well as the late payment interest and penalties that may have been accrued in the non-payment of these. Other forms of tax are not pursued in this way.
A PLN will also not apply if non-payment of NICs was due to the insolvency of the business. This is why HMRC will only go down this path if, during the period that the NICs were underpaid, the company was still making substantial payments to other parties.
PLN’s are only intended to tackle those HMRC believe are deliberately attempting to avoid tax or operate fraudulently.
Repaying NIC Debt
Personal Liability Notices are a drastic measure that companies and their officers should be familiar with. Whilst PAYE debts will be reclaimed on the basis of tax that has been underpaid on payments to the directors and associated parties only, the potential personal liability of the company directors in this case covers all of the business’s outstanding NIC debts.
This means that on the issue of a PLN, any company NIC debt, as well as late payment fees and penalties, becomes immediately payable by the company director(s) personally.
Can You Challenge a Personal Liability Notice?
On the subject of unpaid tax, HMRC state they are happy to meet with company directors and work out a solution, as long as the business is upfront and transparent in the matter. Usually a PLN will be a last resort, meaning that the company has plenty of opportunities to make representations to HMRC before the PLN is issued. It is important to note that the only way to appeal a PLN is through the Tax Tribunal.
On receipt of a PLN, HMRC will want a company’s directors to admit responsibility and reach a settlement based on what they can afford. If company directors refuse to accept responsibility and instead dispute the notice, it will be up to the Tax Tribunal to decide what happens next.
If you, as a company, believe that you have behaved honestly and not deliberately avoided NICs, then you may appeal. However, if your appeal is not successful then doing so may cause you to lose your opportunity to negotiate with HMRC.
How To Make Representations To HMRC
Before a PLN is issued, company directors will have been made aware of HMRCs concern and have already been given the opportunity to explain why the business has failed to pay the tax that they owe.
You can make representations individually or as a group of directors, based on the reasons that you plan to give for not paying, and whether you are representing yourself or the business as a whole. HMRC will then consider all of the evidence and explanations given in their decision-making process in whether to issue Personal Liability Notice(s).
For the most part, if directors can prove that they weren’t being deliberately negligent in their NIC payments, or accept responsibility and offer to negotiate a settlement, this process can be resolved without HMRC having to issue of PLN.
What If An Agreement Cannot Be Reached?
If negotiations are unsuccessful then HMRC will work out exactly how much each ‘responsible’ director owes and is expected to pay, and issue this to each party directly. This information will be sent alongside a detailed notice explaining how HMRC arrived at this decision.
At this point there is no other option than to make a final appeal through a tribunal or make the payments as requested.
What About Companies In Liquidation?
Directors of companies which are already currently in liquidation can still receive personal liability notices. In this case. HMRC will go to the liquidator and ask for the company’s books and records, and then make its decision based on the information and evidence found there.
How To Get Help With PLNs
Once a PLN is issued it is often very difficult to appeal the decision and negotiate with HMRC. For company directors who are subject to a PLN enquiry, the best thing that you can do is to seek specialist advice as soon as possible.
Seeking professional advice will help you to gather the evidence you need and make representations to HMRC so that the process can be dealt with peaceably and with an eye towards reaching a solution.
The team at TFMC can help you if you are subject to a PLN. Decisive action is the best course of action if you wish to successfully challenge a PLN that you have received, and depending on the circumstances, our experienced accountants can work with you to build a convincing and challenging argument to HMRC that they should withdraw, or significantly reduce, the demand made of you.
To get in touch please call us on 0800 470 4820 or send us an email at firstname.lastname@example.org.