Alert: Potential Personal Liability For PAYE/NIC Arrears
Managing Your Four Key Risks In a Turnaround - Part 3 Personal Liability For Taxes
The second article in this series covered the main risks of personal liability for their company's debts directors can face under insolvency legislation. Directors will, rightly, often seek advice on their position in an insolvency. When they do so, the main issues that their advisers will usually cover are those risks which arise specifically from the insolvency legislation, such as wrongful or fraudulent trading, and what the impact on them might be in a formal insolvency.
The fact that directors can be held personal liable for arrears of Crown payments due to HMR&C seems to be discussed much less often; while the taxman can also impose conditions on any new business you are involved with which can lead to severe funding issues.
Director's Potential Personal Liability For PAYE/NIC
When a company fails to remit PAYE deductions and NI contributions because of a director's 'negligence', HMR&C has the power under Section 121C of the Social Security Administration Act 1992 to issue a personal liability notice or PLN.
A PLN has the effect of making the director personally liable for the company's unpaid taxes.
HMR&C can issue a PLN 'whenever contributions are unpaid because of the neglect of a culpable officer.' While failure to pay contributions can obviously constitute neglect, to date HMR&C seem to have only considered issuing a PLN in the most serious of cases. If considering using this power they will look at a range of factors such as:
- has there been a record of persistent failure to pay over PAYE/NIC when other payments are being made as they fall due;
- has directors' remuneration has continued to be paid during the period; and
- has the individual been involved with other companies which have failed to pay over taxes?
Despite being on the statute book,HMR&C seems to have only used this power quite rarely. However as HMR&C has both lost its position as a preferential creditor and become owed substantial sums in arrears of taxes (in excess of £40 billion at the time of writing acording to some estimates), there is some concern that HMR&C is looking at all its powers for collecting in sums that are due and may therefore begin to use this power more extensively.
In a recent case, Leslie Livingstone v HMR&C Commissioners, taxes were unpaid over a period exceeding a year while other creditors were paid, including to the sole director who was a qualified accountant as well as companies linked to him. The director argued that he had not intended to deprive HMR&C but was found to have been negligent and was made personally liable for £60,000 of unpaid taxes.
An investigation of this type by HMR&C can be a prolonged and stressful experience, as well as being a potentially expensive one.
Trading Using Crown Monies
The level of unpaid Crown monies is one of the items that insolvency practitioners have to include in their report on a director's conduct. As a result, 'trading using Crown monies' is increasingly a key issue in the Crown bringing disqualification proceedings against a director and one estimate is that approximately 40% of current disqualification proceedings are related to unpaid taxes, while law firm Wedlake Bell are reporting a 17% annual increase in disqualification proceedings being brought.
Deposits On New Trading
Finally, where the directors of a company which has failed owing substantial amounts of tax, PAYE/NIC or VAT, are involved in a new business, the tax authorities are also increasingly making use of their powers to demand that the new business pays a deposit to cover tax that may fall due. The amount required can be the equivalent of a full year's worth of expected tax for the new business. While HMR&C will return the deposit at the end of a year, it can obviously be a substantial sum to find for a new start up. But if this is required, do not ever be tempted to carry on trading without paying it as this can lead to criminal proceedings. Of course the information contained in an article like this can never be a full statement of the legal position as the relevant laws are complex and liable to change. This article can only therefore be a general guide as to the issues involved and as these can have serious implications you should always seek appropriate professional advice on your own particular circumstances before taking any action.
Questions and Answers
Managing Your Four Key Risks In a Turnaround - Part 2 Insolvency Risks. As a director or owner manager of a business facing difficulties, it is important to ensure that you manage your personal risks appropriately. The previous article discussed how to deal with your normal responsibilities and the need to manage your personal mental health during a crisis. In Part 2 this article looks at insolvency specific risks.
HM Revenue and Customs (HMR&C) have lost their special rights as insolvency preferential creditors and are broadly treated like any other creditor. So, if you are having difficulty paying VAT or PAYE on time they are now more exposed and have to be more careful to ensure they are paid, however it is still possible to obtain support if you have arrears and this article covers how to do so.
Managing Your Four Key Risks In A Turnaround - Part 1 Personal Risks. As a director or owner manager of a business facing difficulties, it is important to ensure that you manage your personal risks appropriately and these articles address how to approach this task by focusing on four key areas.
If you are in debt and it has become unmanageable, it can be a nightmare. This article sets out what your options are to break out of the vicious debt cycle.
In USA, one of the leading brands that offer diverse and high quality products promoting proper hygiene is Difresh USA. If you are looking for the best opportunity to grow and have the opportunity for a new business Difresh USA can help you for they are looking for Exclusive Local Distributors
Getting clean and refresh doesn't sacrifice the place where you are for it should be a habit. Having a healthy body will allow you to do things right and good. And no matter where you are you should practice a healthy and proper hygiene even in little things you do.
Maintaining a healthy and proper hygiene badly needs products that are truly effective and could truly answer our need for this. No matter where we are and at anytime we want to get clean we basically need these products right away and only Difresh USA can supply these in a very easy way
The key reason why some firms thrive while some implode during an financial recession is still a puzzle to many people business-owning business owners. Some wrongly assume that all businesses should suffer via recessionary cycles. But the truth is that some companies are usually essentially recession-proof, and it is not necessarily because they are much larger, better known, or a lot more generously capitalized.
Companies like Arch Coal (ACI) and Massey Energy (MEE) watched his or her stock climbed.
All businesses, of whatever size or stage in its development, need to have formal business plans in place, prepared by the management and not their accountants, and fortunately there are many now many free business plan templates available on the web to help you in business planning.
The easiest way to visualise how factoring and invoice discounting work is to imagine that as soon as you have made a sale to a customer, you can then immediately 'sell' your unpaid invoices to the lender at their full face value. This article covers how the full process works.
If you have been looking for ways to spruce up your office, you will want to make sure that you are using the most universal, up to date stylish office furniture. For many people, this could be a real problem, especially where finances are concerned. If we are talking here about a home office, then you may not be too concerned about the style of the furniture, being more interested in comfort and quality.
The final part of this guide to business loans and finance raising covers 'property development finance' through to 'yield'.
Factoring and invoice discounting are both forms of receivables finance that allow you to raise money directly against your outstanding debtors as a way of covering a 'funding gap' and this five part series of articles is intended as an introduction to what they are and how they work.
Discuss this Article
