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Can HMRC hold Directors Liable for Tax?

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Written by
John A Waller

Can HMRC hold Directors Liable for Tax?

Can HMRC hold directors liable for tax? 


HMRC are conscious that some company directors and officers deliberately exploit the UK tax system. Shelf companies often abuse them, protecting the directors by a ring-fence referred to as “limited liability”.

Holding the authority to raise the’veil of incorporation‘. Therefore, securing officers of a limited company, being held personally liable for some company debts. Then, it enables HMRC to boost tax receipts and guarantee HMRC claims remain paid as a preference, therefore discouraging robustly, company directors considering attempting to abusing their situation with HMRC.

Company directors then can, however, remain personally liable when the company can’t pay PAYE to HMRC:

However, the evidence must then demonstrate the company’s deliberate intent or failure to pay was:

  • Intentional; 
  • Result of neglect; 
  • Fraud.

The risk for Directors in an Insolvency owing Tax?

The risk of company directors being hounded when their company has unpaid tax, when insolvent, remains minimal. Company directors who experience two or more company insolvencies in a five-year period need to take advice from an independent insolvency practitioner before considering launching a further limited company.

The Finance Act of 2020 came into effect on the 22nd of July 2020. It included allowing HMRC to issue Joint Liability Notices (JLN) to company directors under specific conditions. They may now be issued to company directors who repeatedly have insolvent companies and have outstanding tax. It specifically applies if a director has two or more insolvencies in the past five years.


  • If the companies liquidated, owed tax or had not submitted returns operating to the outstanding tax;
  • The new company, created after the original co, then failed in the five-year period, again owing tax with the same director;
  • Therefore, the issuing of a JLN, then the Old Company failed, had a tax liability, and the tax liability was either £10,000 or more, or remains 50% or more of the first Company’s liability to the companies unsecured creditors.

Resulting in the direct or remaining jointly liable with the first company failure tax liability at the moment. The JLN is issued along with the second company tax liability owing at the time of the JLN, along with any tax liability resulting within five years of the date of the JLN.

JLNs are to be directed at those directors who repeatedly flout company law, leaving a trail of failed companies and crown debt. HMRC hope to close the net on fraudulent directors, along with changes affected December 1st 2020. To HMRC status, when paid out stop, payments in preference to HMRC by directors. Interesting times ahead.

Can HMRC hold directors liable for tax? If so, who is Liable for Unpaid PAYE?

Different rules apply to PAYE debt, depending on the circumstances and if deliberate misconduct occurs. If HMRC is in error, they help the team member make payments related to HMRC error by changing tax codes over the following tax period.

Nevertheless, in the event, the error is by the team member. Then HMRC may challenge it through inspection for potential deliberate liability avoidance, and are the directors acting with due care and attention. Perhaps misfeasance on their part. If proven, then directors face liability personally.

Where companies deduct PAYE from employees and then fail to pay it over? Then, the chance of securing directors as personally responsible remain.

Further, HMRC may transfer unpaid PAYE to a director or officer while seeking recovery from the company directors personally having deliberately failed to deduct tax.

So, HMRC may then not abuse using a personal liability order, but only when a director with intent withholds PAYE.

Unpaid tax by fraudulent activity or neglect by company officers then prompts the HMRC to issue a Personal Liability Notice (PLN) with justification. Consequently, securing directors engaged in such misfeasance exposes them to remain personally liable for the tax remaining unpaid. 

HMRC will issue a PLN to a formal director. Nevertheless, the addition of the statement, “or any person purporting to act as such”, affects any individual who can be proved to have acted as a shadow or de facto director, or fulfilling a function and holding duties ordinarily connected with what is expected of a formal director.

Company directors then should check out options paying PAYE arrears quickly in any event.

Are PAYE arrears pulling your company down?

National insurance contributions remain unpaid

Seeking recovery of unpaid National Insurance contributions (NIC) from company directors remains within the power of HMRC to then recover in full of penalties and interest charges. The tool they use for securing and then recovering the money unpaid is a Personal Liability Order.

HMRC may issue a personal liability order when an aspect of fraud proves and is the main reason behind the NIC’s non-payment.

It’s essential to heed. HMRC does not abuse a PLN as a vindictive means against directors struggling financially. A PLN remains used when evidence that particular directors preferentially pay other creditors before HMRC, even paying themselves first or other companies connected with them.

Therefore, do Directors remain Liable for VAT Personally?

Not all taxes may directors be held personally liable. Still, VAT remains in the camp, directors may be held responsible. Evading to pay or deliberately simply not paying may make a director accountable. Nevertheless, this only applies if the company which has not paid remains insolvent, or maybe soon. Therefore, check out: can’t pay VAT, what happens next due to cash flow?

So if your company can’t pay VAT and it is not deliberate, directors need immediate advice from a licensed Insolvency Practitioner.

Shadow Directors and Personal Liability Orders

Section 121C(9) describes an “officer” of a company as “any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act as such; and in a case, when its members manage the affairs of the body corporate, any member of the body corporate exercising functions of management concerning it or purporting to do so”._

On occasions, limited companies are managed by individuals who have not formally been designated as directors of a limited company and registered at companies’ houses. Various reasons exist for this. However, a PLN may be issued if it can be proved the person involved remained:

  • A ‘shadow director’;
  • Extensively involved in the day to day management of the companies functions;
  • Remains someone can issue directions directors of the company rely upon to execute.

A shadow director remains an individual, not an appointed named director of the company; however, directs or carries out the company’s control.  A shadow director is described in section 251 of the Insolvency Act 1986 as “a person by whose directions or instructions the directors of the company are accustomed to act (but so that a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity).”

For further reading on what company directors may be held liable for, please view ‘directors liabilities‘.

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