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April 21, 2021 | Silver Law
HMRC can issue Personal Liability Notices (PLN) and Joint Liability Notices (JLN) to launch investigations into any potential tax offences or disputes they suspect the directors have caused.
What Is A Personal Liability Notice?
A Personal Liability Notice (PLN) is issued to a company director, shadow director or other company officers when an HMRC investigation believes their neglect or fraud led to incorrect tax payments being made or not made as if often the case.
HMRC’s investigation will question anyone they believe may have committed tax offences, such as deliberately hiding any inaccuracies in the VAT returns of a company or fraudulently evading National Insurance contributions.
Directors and company officers will have the chance to explain why tax responsibilities have not been met. A PLN can lead to:
• Personal bankruptcy
• Disqualification as a director
• A potential prison sentence if extreme levels of fraud are found.
What Do Directors Need To Do?
We advise anyone who has received a PLN to act quickly. There are only 30 days to launch a challenge with HMRC.
What Is A Joint Liability Notice?
Joint Liability Notices (JLN) are issued by HMRC to secure tax payments when it believes a company is either insolvent or about to become insolvent yet tax is still outstanding.
A recipient of a JLN will be required to take on the debt. An HMRC officer can provide a JLN if they suspect a business of:
• Tax evasion
• Tax avoidance
• Repeated liquidation non-payment
Tax evasion is an illegal attempt to avoid paying any tax.
HMRC will pursue any director or other officer it believes is attempting to avoid paying tax, with penalties ranging from fines to criminal convictions and, in the most severe cases, imprisonment.
Tax evasion comes in a number of forms including:
• Evasion of paying VAT
• Cheating public revenue
• Evasion of paying income tax
• False accounting and providing fake documents to HMRC
• Evading paying duty on imported goods.
Tax Avoidance Joint Liability Notice
A JLN will be issued if it appears:
• A company has entered into a ‘tax-avoidance arrangement’
• A company is subject to – or there is a serious possibility of it becoming involved in – an insolvency procedure
• An individual was a company director and (i) responsible (alone or with others) for entering into a tax-avoidance arrangement or (ii) received a benefit which to their knowledge arose from the arrangement or (iii) took part in, assisted with or facilitated the arrangement
• There is – or likely to be – a tax liability referable to the tax-avoidance arrangement and a serious possibility this will go unpaid.
Repeated Insolvency And Non-Payment Of Tax
Repeated insolvency resulting in non-payment of tax is a situation where HMRC suspects an individual or board of directors of continually declaring the bankruptcy of a company to avoid paying tax.
The authorities have taken steps to try and reduce instances of this by making company officers liable for a company’s debt. HMRC can issue a JLN if they suspect:
• An individual has been a director of at least two companies within five years of a JLN being issued which have gone into insolvency
• When declaring their insolvency, the companies had tax liabilities, failed to submit tax returns or make the relevant declarations
• A new company is seen to be continuing a similar trade to the previous companies and an individual is a director during this five-year period
• When the JLN is given, at least one of the old companies has a tax liability of more than £10,000 and represents more than half of these liabilities to unsecured creditors.
The issuing of a JLN means the director is now liable for any outstanding tax for the old companies, the new company and any money arising during the five years following the JLN.
What Do Directors Need To Know?
The Repeated Insolvency JLN must be issued within two years of HMRC becoming aware of facts sufficient for them to conclude the conditions for the JLN were met. Anyone issued with a JLN has the right of review by HMRC, after that, they can appeal to the First-Tier Tax Tribunal within thirty days.
Time To Pay Arrangements
HMRC has the same priorities as other creditors, and getting paid is always the first of these priorities. Because of this, HMRC is sometimes willing to enter into a type of deal called a Time To Pay arrangement with distressed companies.
A Time To Pay arrangement is just what it sounds like — an agreement in which your company receives more time to pay off its HMRC arrears. Instead of paying the taxes you owe to HMRC in a lump sum, your company might be able to make small, regular instalments on its debts.
Not all companies can enter into a Time To Pay arrangement with HMRC. In order to qualify for a Time To Pay arrangement with HMRC, your company will need to be financially viable. In simple terms, this means that it needs to have a viable future once it has paid off its existing creditors (including, but not limited to, HMRC).
If your company is hemorrhaging cash, for example, and has little or no income, it’s unlikely that HMRC will agree to a Time To Pay arrangement. If it’s a viable, profitable business that’s simply set back by a non-paying customer or cash flow problem, HMRC will be far more responsive.
Just like with any other situation related to your company’s solvency, the key to success is to act quickly.
Author Monty Jivraj is Head of Tax Investigations and Disputes and has worked with individuals and business in the UK for twenty years to help them understand tax laws and save millions of pounds. His business operations background allows him to quickly understand your business model and how the UK and EU tax laws apply to you.
Through extensive work with Her Majesty’s Revenue and Customs (HMRC), he can easily translate and advise on complex HMRC policies, public notices, decisions to deny input tax, fraud investigations and tax assessments.
At Silver Shemmings Ash, we provide seminars and training alongside our core activities in contentious and non-contentious matters. The purpose of these is to facilitate a greater knowledge and understanding of construction and property law. There remains a considerable lack of training in such areas for companies and this is an issue which we are looking to address
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