Understanding the impact of a Personal Liability Notice (PLN)

A Personal Liability Notice (PLN) from HM Revenue & Customs can have a significant impact on both a company and its directors.

HMRC will issue a notice when a company fails to pay its tax liabilities, and the tax authority believes that the directors of the company were responsible for the failure.

The notice makes the directors personally liable for the company’s tax debts, which means they could be held personally responsible for paying the debts out of their own assets.

Additionally, the company’s credit rating may be negatively affected, making it more difficult to obtain financing or do business with other companies.

What is a personal liability notice?

A Personal Liability Notice HMRC is a legal instrument in the UK to hold directors personally responsible for their company’s unpaid tax liabilities. If a company fails to pay its taxes, HMRC may issue a PLN to the directors, making them liable for the company’s debts. This means that the directors can be held personally accountable for the amount of the unpaid taxes, and HMRC can take legal action against them to recover the debt.

They are typically issued when it believes that the company’s directors were responsible for the failure to pay the taxes, either through negligence or intentional wrongdoing.

HMRC PLN are used to deal with other situations, such as preference payments and compulsory liquidation cases where they feel NI contributions have been deliberately avoided, after adding them to its arsenal of weapons for fighting tax fraud.

The notice can have serious consequences for the directors, including personal bankruptcy and loss of reputation, and can potentially result in criminal charges if there is evidence of deliberate tax evasion.

When are Personal Liability Notices issued?

HMRC Personal Liability Notices are issued under specific circumstances. Here are some common reasons why PLNs may be issued:

• If a company fails to pay its taxes and HMRC believes that the directors were responsible for the failure, either through negligence or intentional wrongdoing.
• If a company enters into a tax avoidance scheme that is later deemed to be illegal or non-compliant with tax laws, and the directors are found to have promoted or participated in the scheme.
• If a company becomes insolvent and has unpaid tax debts, and HMRC determines that the directors continued to trade the company while knowing or suspecting that it would not be able to pay its tax liabilities.

In each of these cases, HMRC may issue a PLN to the directors of the company, making them personally liable for the unpaid tax debts. The purpose of the notice is to encourage directors to ensure that their company complies with tax laws and to deter them from engaging in tax avoidance or evasive behavior

What does a Personal Liability Notice mean for the recipient?

Receiving a PLN can have significant implications for the recipient, typically the directors of a company. Here are some of the consequences that may result from a PLN:

• The recipient becomes personally liable for the unpaid tax debts of the company, which means they may need to pay the debts out of their own assets.
• If the debts are not paid, HMRC can take legal action against the recipient to recover the debt, which could result in personal bankruptcy.
• The recipient’s credit rating may be negatively affected, making it more difficult to obtain financing or do business with other companies.
• Receiving a PLN can damage the recipient’s reputation and may lead to public scrutiny of their business practices.
• If HMRC has reason to believe that the recipient engaged in deliberate tax evasion, they may face criminal charges and potential imprisonment.

Overall, a PLN can have severe financial and personal consequences for the recipient, and it is essential to seek professional advice to understand your options and obligations.

What is repayable under a PLN?

A PLN makes the directors of a company personally liable for the company’s unpaid tax debts. The amount of the debt that is repayable under a PLN depends on several factors, including the type of taxes owed and the amount outstanding. Here are some general guidelines:

• PLNs cover unpaid taxes and associated penalties and interest.
• PLNs may cover multiple tax periods or types of taxes owed, including income tax, VAT, PAYE, and National Insurance contributions.
• The amount of the debt that is repayable can be substantial, and directors may need to pay the debt out of their own assets if the company is unable to pay.

It’s essential to seek professional advice if you receive a PLN, as the consequences of non-payment can be severe, including personal bankruptcy and legal action.

Frequently asked questions

What triggers the issuance of a Personal Liability Notice?

A Personal Liability Notice (PLN) may be issued by HM Revenue & Customs (HMRC) if a company fails to pay its taxes, enters into a tax avoidance scheme that is later deemed to be illegal, or becomes insolvent with unpaid tax debts.

Can a Personal Liability Notice be challenged?

Yes, a PLN can be challenged if the recipient believes that they are not responsible for the unpaid tax debts of the company, or if there are errors or omissions in the notice. The recipient can appeal to HMRC, and if necessary, to the tax tribunal.

What are the consequences of ignoring a Personal Liability Notice?

Ignoring a Personal Liability Notice can have severe consequences for the recipient, including legal action by HMRC to recover the unpaid tax debts, personal bankruptcy, and damage to the recipient's reputation. It's essential to seek professional advice and respond to the notice promptly to understand your options and obligations.

Notification of an intention to issue a personal liability notice

Before imposing a personal culpability notice, HMRC’s Fraud Investigation Service will usually send you a lengthy letter with inquiries.

Such inquiries will be handled;

• the company’s failure to pay NIC liabilities
• the periods of time HMRC is concerned with
• the amounts unpaid
• evidence of the recipient acting in company management; any history of previous companies that show similar patterns of behaviour
• and what portion of the liability is attributed to that individual.

This letter will allow you to make representations on the facts supplied and why you believe the company’s National Insurance Contributions have not been paid.

A personal liability notice will not be issued if HMRC accepts these reasons. As a result, it is critical that legal counsel be sought as soon as the intention to issue a notice is received.