Director Personal Liability for Company Tax Debts: The Complete UK Guide

Limited liability is one of the cornerstones of UK company law, but it is not absolute. HMRC has a growing toolkit of statutory routes to pierce the corporate veil and pursue individual directors personally for the company’s unpaid tax. Understanding when those routes apply and how to defend against them, can mean the difference between a company problem and a personal one.

When can HMRC pursue a director personally?

In the normal course, a company’s tax debts belong to the company. If the company cannot pay, HMRC ranks as an unsecured creditor in an insolvency and takes whatever is available. However, Parliament has enacted a series of provisions that allow HMRC to step outside this framework and pursue individuals directly. The main routes are:

• Personal Liability Notices (PLNs) , for NIC, VAT and PAYE where deliberate conduct or neglect is established
• Joint and Several Liability Notices (JSLLNs) , under Finance Act 2020 for serial tax avoiders and promoters
• Section 455 CTA 2010 , the participator loan charge
• Phoenix company security deposits , under s48 VATA 1994
• Insolvency Act routes , wrongful trading (s214 IA 1986) and misfeasance (s212 IA 1986), pursued by the insolvency practitioner but benefiting HMRC as a creditor

Each route has its own legal threshold, statutory framework and appeal mechanism. A single set of facts may expose a director to more than one route simultaneously.

Personal Liability Notices (PLNs)

A PLN is a formal notice issued directly to an individual, typically a director, making them personally liable for a specified amount of the company’s tax debt. There are three separate statutory regimes:

NIC Personal Liability Notices, s121C Social Security Administration Act 1992

Section 121C SSAA 1992 allows HMRC to issue a PLN to an officer of a company where National Insurance Contributions remain unpaid and HMRC can show the company’s non-payment was attributable to the fraud or neglect of that officer. “Neglect” has a wider meaning than fraud, it includes a failure to take reasonable care, but it still requires something more than mere business failure. Passive non-participation is not enough; HMRC must show the officer was actually involved in the conduct that caused the non-payment.

VAT Personal Liability Notices, para 5 Sch 13 VATA 1994

Paragraph 5 of Schedule 13 to the Value Added Tax Act 1994 permits HMRC to recover a company’s VAT penalty from an officer of the company personally, where the conduct giving rise to the penalty was attributable to dishonesty on the part of that officer. The threshold here is higher than for NIC PLNs, dishonesty requires a finding of subjective dishonesty by the director, assessed by reference to the Ivey v Genting Casinos [2017] UKSC 67 standard.

PAYE Personal Liability Notices, Reg 72 Income Tax (PAYE) Regulations 2003

Regulation 72 allows HMRC to direct that a director is personally liable to pay the PAYE that the employer-company failed to remit, where the employer wilfully failed to deduct or account for PAYE and the failure was attributable to the deliberate act of the director. The regulation also applies where the employer is insolvent. HMRC frequently issues Reg 72 notices in conjunction with NIC PLNs because the factual basis is usually identical.

Joint and Several Liability Notices (JSLLNs)

The Finance Act 2020 introduced a powerful new mechanism at Schedule 13: the Joint and Several Liability Notice. Unlike PLNs (which are tied to specific taxes), a JSLLN can make an individual jointly and severally liable for all of a company’s tax liabilities where HMRC considers the individual to be a “relevant person”.

A JSLLN may be issued where HMRC reasonably suspects that:

• The person is or has been, involved in tax avoidance or tax evasion arrangements; or
• The person is a “relevant promoter” under the DOTAS regime; or
• The person is associated with repeated insolvency or non-payment (the “serial avoider or evasion” limb)

The “repeated insolvency” limb captures directors who have been associated with two or more companies that have become insolvent leaving tax liabilities unpaid and where HMRC considers the same person poses a risk to future tax revenues. HMRC must issue a preliminary notice first and the individual has 30 days to make representations.

Section 455 charge, participator loans

While s455 of the Corporation Tax Act 2010 is technically a company-level charge, not a personal liability, it sits at the intersection of corporate and personal tax and is frequently encountered during director liability investigations. A detailed treatment is in our dedicated guide: Section 455 Charge on Directors’ Loan Accounts.

In summary: if a loan or advance is made to a participator (which includes a director-shareholder) and the loan remains outstanding nine months after the end of the accounting period in which it was made, the company faces a charge at 33.75% of the outstanding amount. Although the company pays the charge, HMRC will regard an undisclosed or unexplained directors’ loan account (DLA) as a strong indicator of deeper problems and a DLA investigation often leads directly to personal liability enquiries.

The “bed and breakfasting” anti-avoidance rules at ss464A–464D CTA 2010 prevent directors from repaying a loan within 30 days of year-end and re-drawing it or from entering arrangements with the intention of avoiding the charge. HMRC has robust anti-avoidance powers in this area.

Phoenix companies, HMRC’s response

A “phoenix” arrangement arises when a business is wound up leaving tax debts behind and the same directors immediately set up a successor company running the same trade from the same premises with the same staff. HMRC has three primary responses:

VAT security deposits, s48 VATA 1994

Section 48 VATA 1994 (and the associated Value Added Tax (General) Regulations 1995) allows HMRC to require a new business to provide security, typically a cash deposit, as a condition of VAT registration, where HMRC considers there is a risk of non-payment. This is common where a director’s previous company left VAT debts unpaid. Failure to pay the security means the business cannot register for VAT and therefore cannot trade lawfully in many sectors.

Transfer of a Going Concern (TOGC) liability

If the phoenix company is treated as a transfer of a going concern for VAT purposes, it may inherit the predecessor’s VAT history, including any assessments. HMRC will argue TOGC applies when the business, assets and trade all transfer, even if the corporate entity changes.

PLNs and JSLLNs on the director

Where the previous company accumulated NIC, VAT or PAYE arrears through deliberate non-payment, HMRC will ordinarily issue PLNs against the directors before or during the liquidation. The JSLLN route additionally allows HMRC to secure the director’s personal liability for the successor company’s debts if the “repeated insolvency” conditions are met.

Insolvency routes to personal liability

When a company enters formal insolvency, the appointed insolvency practitioner (IP) has statutory duties to investigate the conduct of directors. HMRC is consistently one of the largest creditors in corporate insolvencies and it works closely with the Insolvency Service to recover funds.

Wrongful trading, s214 Insolvency Act 1986

Section 214 IA 1986 allows a liquidator to apply to court for an order that a director contribute to the company’s assets where the director continued to incur credit (including HMRC liabilities) after the point at which they knew or ought reasonably to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation. The “ought to have concluded” limb means this is an objective standard, ignorance of the company’s financial position is not a defence if a reasonably diligent director would have known.

HMRC debts (PAYE, NIC, VAT, corporation tax) that accrued after the “wrongful trading” date are precisely the type of liability the court can require a director to fund personally. A successful s214 claim effectively reverses the corporate veil for the relevant period.

Misfeasance, s212 Insolvency Act 1986

Section 212 IA 1986 provides a summary remedy against officers who have misapplied or retained company money or property or been guilty of any misfeasance or breach of fiduciary duty. Where a director has paid themselves excessive remuneration, dividends out of non-existent reserves or repaid their own loans to the company in preference to HMRC in the “twilight period”, a misfeasance claim can recover those sums. The amounts recovered go into the insolvent estate and increase the dividend available to HMRC and other creditors.

Preferences and transactions at an undervalue, ss239–240 IA 1986

A preference (s239) occurs where a director causes the company to pay a connected creditor (including themselves) in preference to unconnected creditors such as HMRC, within two years of the onset of insolvency. A transaction at an undervalue (s238) includes a director purchasing company assets cheaply before insolvency. Both can be reversed by the liquidator, again benefiting HMRC as a creditor.

The “deliberate” conduct threshold

Most PLN routes require HMRC to establish “deliberate” conduct (or, for VAT, “dishonesty”). This is a higher hurdle than many directors assume:

• Not deliberate: business failure without warning signs; relying on a wrong professional opinion; a genuine if incorrect belief that the tax was not due; a mistake by the company’s bookkeeper
• Potentially deliberate: knowingly failing to remit PAYE/NIC while paying other creditors; operating a “VAT carousel”; deliberately misclassifying workers to avoid NIC; knowingly filing inaccurate returns
• Clearly deliberate: falsifying invoices; cash payments off the books; destroying records; systematically routing company income through personal accounts

In practice, HMRC sometimes stretches the deliberate threshold, particularly for PAYE/NIC cases where the company was always behind on payments and the director was aware. Directors should not assume that because they did not “intend” to evade tax, there is no risk. HMRC’s view of what constitutes deliberate conduct has broadened over time, and First-tier Tribunal decisions have gone both ways.

Defences available to directors

A director who receives a PLN or JSLLN has several potential defences, depending on the statutory route used:

No culpable conduct

The most fundamental defence: arguing that the non-payment was not attributable to any fraud, neglect, dishonesty or deliberate act by the director. This is most powerful where the director was passive or did not control the relevant function (e.g., a non-executive director or one responsible only for operations rather than finance).

No causation

Even if the director behaved badly, HMRC must show that the bad conduct caused the non-payment. If the company would have failed to pay regardless of what the director did, because it was insolvent, causation may be absent.

Quantum disputed

Challenging the amount of the PLN. HMRC sometimes issues PLNs for the maximum possible figure; the actual personal liability may be lower if, for example, some of the underlying debt relates to periods before the director joined or to periods when the non-payment was not deliberate.

Time-barred

PLNs and assessments are subject to time limits. Enquiries into deliberate behaviour can go back 20 years, but the procedural time limits for issuing the PLN itself are shorter in some cases. Where HMRC has delayed unreasonably, a time-bar defence may be available.

Reasonable steps defence

Under s214 IA 1986 (wrongful trading), a director has a specific defence if they took every step with a view to minimising potential loss to creditors. This is a demanding test but has succeeded where directors can show they sought proper advice and acted on it promptly.

Appeals process and time limits

The appeal process varies by route, but the general framework is:

1. Receipt of notice. Note the date immediately, appeal deadlines run from receipt, not issue.
2. 30-day appeal window. For PLNs and most HMRC assessments, the director has 30 days to lodge an appeal with HMRC. Missing this deadline is serious and requires HMRC’s agreement (or a Tribunal direction) to extend.
3. Statutory review. Once an appeal is lodged, the director can request an internal HMRC review by a review officer not involved in the case. Reviews take up to 45 days and provide an independent assessment without the cost of Tribunal proceedings.
4. First-tier Tribunal (Tax Chamber). If the review does not resolve the matter or is not requested, the appeal proceeds to the FtT. This is a full hearing where both parties can call evidence and witnesses. The director bears the evidential burden of showing the notice is wrong; for some PLN types HMRC bears the burden of establishing deliberate conduct.
5. Upper Tribunal / Court of Appeal. On a point of law only, with permission.

Time limits for underlying tax assessments vary by behaviour: four years (careless), six years (careless) and up to 20 years (deliberate). A director facing a PLN should ensure the underlying company assessment is itself valid before conceding the company liability.

How we help directors

Tax Dispute Consultants is a specialist tax investigation practice with former HMRC investigators on our team. For directors facing personal liability risks we:

• Advise promptly on receipt of a PLN, JSLLN or insolvency notice, before the appeal window closes
• Assess the strength of HMRC’s position and identify all available grounds of challenge
• Gather and organise the documentary evidence needed to support an appeal
• Represent directors at FtT hearings in the Tax Chamber
• Negotiate settlements and apportionment with HMRC and insolvency practitioners
• Advise on Personal Liability Notice defences as a discrete service

Related guides

• Defending a Personal Liability Notice (PLN)
• Section 455 charge on directors’ loan accounts
• Directors’ loan account investigations
• All resources
• Our PLN defence service
• HMRC penalty calculator

Frequently asked questions