Being a company director can be tough, especially when you’re not sure if your business is paying what they owe when they owe it!
That’s why the UK government has introduced new legislation that will make directors liable for any unpaid taxes their company owes. The legislation applies to liabilities relating to any period that ends on or after 22 July 2020. The new legislation is to combat tax avoidance, tax evasion and repeated insolvency.
The Joint Liability Notice was designed to discourage companies from deliberately avoiding tax payments and to ensure that directors are aware of their responsibilities in this area.
This new legislation means that Directors can be liable for Company Debts.
Directors can now be held personally liable for company tax debts if they have three failures in five years. A Joint Liability Notice can be issued to company directors, shadow directors, shareholders, and members of a Limited Liability Partnership.
HM Revenue and Customs will look to issue a Joint Liability Notice where a company has gone into liquidation for the third time and the same director or directors have been in charge of a failed company within the last five years. There must be a company tax debt of at least £10,000 and the tax debt has to be more than 50% of the other unsecured creditors.
The Joint Liability Notice is the first step in making directors personally liable for their company’s tax debts.
A director can be held responsible if they have three failures within five years, but only once HMRC has sent a notice of intent and given them 28 days to respond before any action is taken.
An authorised officer may give joint and multiple liability notices to an individual if they are satisfied that the following conditions have been met.
Here is a summary of these conditions.
- the company has entered into tax avoidance arrangements or has engaged in tax evasive conduct
- the company is subject to an insolvency procedure, or there is a serious possibility of it becoming subject to one
- the individual was responsible for the company’s conduct which they took part in, facilitated or assisted or from which they knowingly benefited
- there is or is likely to be, a tax liability relating to the tax-avoidance arrangements or to the tax-evasive conduct
- there is a serious possibility some or all of this tax liability will not be paid
In addition, these other factors will be taken into consideration
- the individual Directors conduct means they can be considered a ‘credit risk’ for HMRC
- the director or shadow director was responsible for the company’s failure to comply with tax legislation, and/or there is a serious possibility that their conduct has contributed to it happening.
- if an individual has been involved in tax avoidance schemes or evasive conduct more than three times within the last five years. This includes directors of limited companies that have failed to file their Corporation Tax returns on time and individuals who provide financial assistance to others when they know it is being used in avoidance arrangements.
Currently, HMRC can issue a notice to individuals only through the courts, but this new power will allow them to take action much faster by issuing notices directly without having first gone before a judge.
The Joint and Several Liability notice
The joint and several liability notice must:
- state the company to which the notice relates
- set out the reasons why the authorised officer considers that each condition has been met
- explain what the giving of the notice means to the individual
- offer a review by HMRC and explain how this works
- explain the individual’s right of appeal
- specify the amount of the relevant tax liability if the existence and amount of that liability have been established
The effect of giving a joint and several liability notice
If HMRC gives a joint and several liability notice to an individual for a tax avoidance or tax evasion case, that individual is jointly and severally liable with the company (and with any other individual who is given a notice) for the relevant tax liability.
This means that if the company cannot pay its debt or other individuals involved in the case do not take action, then this individual is liable to make up any shortfall. This can occur whether they were actively involved in tax avoidance (which could include making false statements) or simply negligent as a director of the company i.e. failing to keep adequate books and records which would have revealed any irregularities.
The right of appeal against a Joint Liability Notice
If you receive a joint and several liability notice from HMRC it explains how you can object – either by appealing direct to the First-tier Tribunal within 30 days of the date shown on the notice. If you have accepted the offer of the review, 30 days from the date of HMRC’s notice informing you of the outcome of the review.
These regulations have been taken from a Gov.UK update published on the 7th October 2021. Link below to the guidance.
Summary
Directors can now be held personally liable for company tax debts if they have three failures in five years.
A Joint Liability Notice can be issued to company directors, shadow directors, shareholders, and members of a Limited Liability Partnership.
Liability Notice would be where a company has gone into liquidation for the third time and the same director or directors have been in charge of a failed company within the last five years.
As always it is best to seek the advice of a professional when it comes to your companies accounts and tax returns. GW & Co Ltd, offers Fresh Thinking, Friendly Advice for Your Business Success. If you’d like to talk about the issues raised in this article or any other accounting challenge facing your business, please do not hesitate to get in touch.
Tel: 01326 378288
Email: info@gw-accountants.co.uk
