HMRC Claims Against Company Directors

Company directors are not generally liable for a company’s debts; however, HM Revenue and Customs (HMRC) is a special type of creditor. The government department responsible for the collection of taxes has statutory powers to claim a company’s tax liabilities against a director personally, including loan charges, VAT security deposits and National Insurance contributions (NIC).

JMW can provide advice in relation to these claims, and assist with any dispute with HMRC. Any director subjected to joint liability notices (JLNs), personal liability notices (PLNs), or facing claims brought by HMRC should act quickly in order to increase their chances of settlement.

To speak to a solicitor if HMRC has made a claim against you, contact us now by calling 0345 872 6666, or fill in our online enquiry form and we will get back to you.

How JMW Can Help

Any suggestion that a company has been involved in tax avoidance, evasion or phoenixism may, in certain circumstances where there is a risk of a company facing insolvency, potentially result in the directors, including unregistered directors, being jointly and severally liable for the company’s tax liabilities.

The commercial litigation team, together with our specialist criminal defence and restructuring and insolvency teams at JMW advise directors on their rights and options when an HMRC claim has been brought against them. We are able to assist directors in relation to proceedings brought by officeholders or government authorities. We can also assist where a matter involves suspected tax fraud or escalates beyond civil recovery, including COP9 investigations, interviews under caution, criminal proceedings and any associated restraint or confiscation proceedings.

Members of the team have been recognised by the Legal 500 and Chambers and Partners for their technical expertise in litigation and dispute resolution

Meet Our Team

JMW’s experienced team has a strong track record of success in defending company directors against personal liability for business debts, and in other HMRC enforcement proceedings.

What to Do if You Receive an HMRC Notice

If you receive an HMRC notice, read it carefully and act quickly. Check what type of notice it is, which tax or penalty it relates to, and the amount HMRC says is owed. Bear in mind that there may be a short deadline for responding.

Do not ignore the notice, even if you think HMRC is wrong, as missing a deadline can make it harder to appeal or stop enforcement action. It is important to take legal advice at an early stage. 

You should gather any relevant records, including company accounts, VAT returns, PAYE and NIC records, payroll documents, bank statements and previous correspondence with HMRC. Check whether the figures are accurate and whether the notice has been issued to the correct person or company.

If the notice involves director liability, penalties, fraud, tax avoidance, enforcement action or a threat of winding up, you should take advice quickly. If the debt is accepted but cannot be paid immediately, you may need to contact HMRC about a Time to Pay arrangement.

Finally, speak to the team at JMW. Our specialist lawyers have defended many directors in tax claims. Speaking to a solicitor at your earliest opportunity is the best way to mount a defence and limit any personal liability for company money or liability.

Types of HMRC Claims

Joint Liability Notices

In certain instances, HMRC may issue JLNs, which make directors personally liable for the company’s tax liabilities. This may also take the form of a several liability notice and make not only directors, but unregistered or de facto directors or other responsible individuals personally liable for certain company tax debts.

These are often associated with phoenix companies, repeated insolvencies, tax avoidance, tax evasion or cases where an insolvent company is wound up with unpaid tax. However, directors are able to appeal against a JLN and should seek legal advice immediately upon receipt of this type of notice. With legal support, the director can usually challenge the JLN by requesting an internal HMRC review or appealing to the First-tier Tribunal within 30 days from the date of the notice.

The director may dispute whether the statutory conditions for the notice are met, whether HMRC has correctly linked the tax debt to the director, whether the amount is correct, or whether HMRC has acted fairly and lawfully. If an internal review is requested, HMRC reviews the decision and may uphold, vary or withdraw the notice. Alternatively, the First-tier Tribunal can consider whether HMRC was entitled to issue the notice and whether the liability has been correctly imposed.

If a director ignores a Joint Liability Notice, they will miss the appeal window and find the notice much harder to challenge, which will result in HMRC treating the director as personally liable for the company tax debt.

Personal Liability Notices

A Personal Liability Notice can make a director or company officer personally liable for certain unpaid company tax liabilities, most commonly in the form of unpaid National Insurance contributions. PLNs can be issued to directors whom HMRC believes are abusing the insolvency process in order to avoid paying taxes and debts, which usually means that the company deducted or owed PAYE/NIC but failed to pay HMRC while directors allowed the position to continue.

Representations can be made to HMRC before a PLN is issued, allowing negotiations to take place and an opportunity to settle on the grounds that the director was not negligent or fraudulent. HMRC needs evidence that an officer was acting at the time of the failure to pay, and that, on the balance of probabilities, the failure to pay was attributable to an individual’s fraud or neglect. If a director can provide evidence that they sought professional advice, tried to agree a Time to Pay arrangement, prioritised HMRC where possible, reduced trading, stopped salary/dividend payments, or took insolvency advice, they may be able to prove that they fulfilled their statutory duties. This can limit the financial consequences of a PLN.

Once a PLN has been issued, directors will be personally liable for unpaid tax liabilities including NIC, interest and/or penalties. The only way to appeal an issued PLN is to bring a case before the First-tier Tax Tribunal, but this is usually only possible within 30 days of receiving the notice. As such, you should seek early legal advice and have the team at JMW make representations on your behalf at your earliest opportunity. Learn more in the government’s guidance on who can receive a PLN.

Loan Charge and Disguised Remuneration Claims

HMRC has taken a strong stance in relation to disguised remuneration schemes in the last few years, with loan charge legislation that came into effect on 5th April 2020 (but with effect retrospectively from 5th April 2019).

HMRC may issue Loan Charge or disguised remuneration claims against directors where income was paid as a loan, advance, credit or other benefit instead of ordinary taxable salary, bonus or trading income, with the tacit understanding that it would not be paid back.

Examples include:

• Employee Benefit Trusts, where funds were routed through a trust and then paid to employees or directors as loans
• Employer-financed retirement benefit schemes, where retirement-style structures were used to provide loans or benefits outside normal PAYE treatment
• Contractor loan schemes, often marketed to IT contractors, healthcare workers, locums, agency workers and other freelancers
• Remuneration trusts, where business profits or income were routed through a trust and returned to individuals as loans or benefits
• Offshore trust loan schemes, where payments were made through an offshore trust, usually on terms that meant the “loan” was unlikely to be repaid
• Partnership or self-employed loan schemes, where trading income was diverted through a structure and returned as loans
• Umbrella company loan schemes, where workers were paid a small taxable salary plus a larger untaxed loan or credit
• Bonus replacement schemes, where bonuses were paid through loans or third-party arrangements rather than payroll
• Director or shareholder extraction schemes, where company profits were extracted as loans rather than salary or dividends
• Company directors found to have participated in a disguised remuneration scheme may face HMRC demands for repayment of tax, and may risk personal liability. This is a complex and ever-developing area of law, so it is vital that directors seek specialist legal advice at the earliest opportunity.

What Is HMRC's Enforcement Escalation Process?

HMRC’s enforcement escalation process usually moves from contact and payment requests through to formal recovery action if the debt is not paid or agreed. The tax authority will usually start by issuing statements, reminders, payment requests or warning letters. At this stage, the company or director may still be able to agree a payment plan, such as a Time to Pay arrangement, if HMRC accepts that the debt can be cleared.

Statutory demands

HMRC may issue formal warnings or a statutory demand before taking enforcement action. For business debts, this can include a notice that enforcement agents may attend to take control of goods. When a business receives a statutory demand, which is a formal warning that the company must pay, agree terms, or deal with the dispute, it will have 21 days in which to respond.

If the demand is ignored, HMRC may use it as evidence that the company cannot pay its debts and may then issue a winding-up petition.

Taking control of goods

HMRC can instruct enforcement agents to seize a debtor’s goods and sell them to recover unpaid tax, interest and costs. This is the modern process that replaced distraint in England and Wales. HMRC does not need to issue a statutory demand before taking this step if it believes this is necessary. A company director facing an injunction that would result in the seizure of an asset can also resist this process, and JMW has extensive experience in this area of the law. Speak to our injunction disputes solicitors for advice.

When HMRC presents a winding-up petition

If the debt is still not resolved, HMRC may escalate to legal recovery. For a company, this could include a winding-up petition, which from the date of presentation opens up any subsequent corporate transactions to scrutiny and can potentially result in such transactions being deemed void. It is therefore advisable to ensure that the company’s finances are documented and evidenced.

For an individual director who is personally liable, it may include county court action, bankruptcy proceedings or other enforcement against personal assets.

Where the legal conditions are met, HMRC may also pursue directors personally through a Joint Liability Notice, Personal Liability Notice or disguised remuneration scheme.

Q

When are directors personally liable for HMRC debts (such as Corporation Tax)?

A

Directors are not automatically personally liable for company tax debts. Corporation Tax, VAT, PAYE and NIC debts usually belong to the company. However, HMRC may pursue a director personally where company director fraud, tax evasion, repeated insolvency, or tax avoidance activity is suspected. Personal claims against directors through JLNs and PLNs make directors personally responsible for company tax debts, but only in defined circumstances, including avoidance, evasion and repeated insolvency.

Q

How can a director appeal a Joint Liability Notice?

A

A director can usually challenge a Joint Liability Notice by requesting an HMRC review or appealing to the First-tier Tribunal. The director should act quickly, as the deadline is usually 30 days from the date of the notice. The appeal may focus on whether HMRC met the legal conditions for issuing the notice, but the director cannot use that appeal to dispute the existence or amount of the company’s underlying tax liability. It is best to seek expert legal advice if you believe you are entitled to challenge a JLN or PLN, as our expert team can work closely with you to gather evidence to support your appeal.

Q

What is the difference between a JLN and a PLN?

A

A Joint Liability Notice can make a director jointly and severally liable for company tax debts in specific situations, such as those involving tax avoidance, tax evasion or repeated insolvency. A Personal Liability Notice is more commonly linked to unpaid PAYE or National Insurance where HMRC says that the failure to pay was caused by a director’s fraud or neglect. Our specialist team can advise you of your legal responsibilities, depending on which type of notice you have received.

Q

Can HMRC come after me personally if I close my company with debts?

A

HMRC can pursue directors personally when a company is insolvent, but not simply because the company has closed. Limited company debts usually remain with the company, but HMRC can pursue directors personally if the tax authority believes there has been tax avoidance, fraud, neglect or improper handling of company tax debts, or in cases of repeated insolvency. A company closure or formal insolvency process such as liquidation will not automatically protect a director from personal liability if HMRC has grounds to issue a notice or take enforcement action.

Q

What are the legal costs for director claims?

A

While the costs are different in every case, JMW offers a range of funding options that can enable a company director facing financial difficulties to defend such claims as a JLN or PLN. Learn more about the funding options we offer for directors during HMRC investigations and claims.