One of the criticisms that is often made of the UK’s complex insolvency legislation is that it is too easy for the directors of a company to put it into liquidation or administration, ‘dump’ the company’s debts and then effectively start the same business again under the guise of a new company. Such phoenixism has often been of concern to HMRC both in the civil and criminal fields and prosecutions have been made against directors who have undertaken such activities on a repeated basis.
Personal Liability Notices (‘PLNs’)
Directors tempted to go down this route should, however, proceed with caution. Anecdotal evidence suggests that HMRC are issuing PLNs on an increasingly regular basis. A PLN is a notice issued by HMRC to a company director or officer in circumstances where HMRC consider fraud or serious levels of neglect in relation to National Insurance Contributions (‘NIC’s'). A PLN, deriving from section 121C of the Social Security Administration Act 1992, makes the director concerned personally liable to pay the tax rather than the company.
HMRC state (in INS44255) that a PLN will only be issued:
“…when there has been a failure to pay the NIC due and, where that failure is attributable to the fraud or neglect of an individual who was acting as an officer of the company at the time in question.” Directors may appeal a PLN on the basis that:
- the sum claimed in a PLN is not covered by a relevant provision;
- the failure to pay the tax liability was not attributable to any fraud or neglect on the part of the director in question;
- the director was not an officer of the company at the time of the alleged fraud or neglect, or;
- the opinion formed by HMRC when deciding to issue the PLN was unreasonable.
The ability to issue a PLN is a powerful weapon in HMRC’s armoury. It is important to note that PLNs are not restricted to companies in liquidation and HMRC may issue a PLN in respect of a current company where it considers that the director’s or officer’s previous compliance record poses a significant risk to the payment of outstanding contributions. It is all too easy, in these difficult economic times, for a director or officer to fail to keep an eye on tax issues such as prompt payment of NIC’s and other taxes, for example, PAYE liabilities owed to HMRC. Indeed, a company might well prefer to pay other creditors, such as key suppliers, in preference to HMRC. In such a case a director or officer should not assume that any tax liability will rest with the company, he may well find himself personally liable as a consequence of HMRC issuing a PLN.