Defending a Personal Liability Notice (PLN): A Director’s Guide

A Personal Liability Notice is one of the most serious letters a director can receive from HMRC. It makes you personally responsible for your company’s tax debts, potentially hundreds of thousands of pounds. But receiving a PLN is not the end of the road. The legal threshold HMRC must meet is high, there are multiple grounds of challenge and the 30-day appeal window gives you an immediate right to contest it.

What legal threshold must HMRC meet?

HMRC cannot issue a PLN simply because the company has unpaid tax. It must satisfy a specific legal test, which differs by tax type:

• NIC (s121C SSAA 1992): the non-payment must be attributable to the fraud or neglect of the named officer
• PAYE (Reg 72 PAYE Regs 2003): the employer must have wilfully failed to deduct or account for PAYE and that failure must be attributable to a deliberate act of the director
• VAT (para 5 Sch 13 VATA 1994): the penalty must be attributable to the dishonesty of the named officer, the highest threshold of all three

HMRC carries the burden of establishing these elements in any Tribunal appeal. This is not a rubber-stamp process, the Tribunal scrutinises HMRC’s evidence carefully and there is a body of case law showing that HMRC does not always succeed.

Receipt of a PLN and the 30-day deadline

When a PLN arrives, take the following steps immediately:

1. Note the date on the letter, the 30-day clock runs from that date, not from when you opened the envelope
2. Instruct a specialist. A general accountant or solicitor unfamiliar with PLN procedure may not be the right choice for this step
3. Do not contact HMRC directly or make any admissions until you have taken advice
4. Begin gathering documents: board minutes, management accounts, payroll records, bank statements, professional correspondence

If the deadline has already passed by the time you seek advice, all is not lost, but an application for late appeal will need to succeed at the Tribunal and this adds cost and uncertainty. Roberts v HMRC and subsequent cases have confirmed the Tribunal has discretion to allow late appeals where there is a good reason and no prejudice to HMRC, but this is not guaranteed.

Grounds of appeal

1. No culpable conduct

The most direct ground: arguing that the non-payment of NIC, PAYE or VAT was not caused by your fraud, neglect, dishonesty or deliberate act. This is strongest where:

• You were a non-executive or passive director not involved in financial management
• A co-director or finance officer controlled the tax function without your knowledge
• You relied on professional advice that turned out to be wrong
• The company fell behind due to external factors (a major customer failure, a bank calling a facility) rather than deliberate decision-making

The Tribunal case of Sandhar v HMRC [2017] UKFTT 533 is instructive: the Tribunal found that a director who had left day-to-day control to a co-director could not be found guilty of “neglect” simply by virtue of being a registered director. Role and actual involvement matter.

2. No causation

Even if there was culpable conduct, HMRC must show it caused the non-payment. If the company was insolvent and could not have paid the tax regardless of what the director did, causation may fail. This argument requires careful analysis of the company’s financial position during the relevant periods.

3. Quantum disputed

Challenging the amount of the PLN. Common quantum arguments include:

• Some of the underlying debt pre-dates the director’s appointment
• Some periods were not within the director’s control (e.g., the director was on medical leave)
• HMRC has included estimated assessments that are higher than the actual liability
• Payments made by the company have not been properly credited

4. Time-barred

PLNs must be issued within certain time limits. For NIC PLNs, HMRC must issue the notice within six years of the end of the year in which the contributions should have been paid, unless deliberate conduct is shown (in which case the period can extend). Where HMRC has delayed issuing the PLN, particularly if the company entered insolvency some years ago, a time-bar argument may have merit.

5. Procedural defects

PLNs must comply with specific formal requirements: they must identify the individual, the tax, the amount and the basis for the notice. Defects in the notice itself can, in some circumstances, invalidate it. The Carlisle Mansions line of cases has addressed situations where HMRC issued notices without adequate particularisation of the conduct alleged.

6. Reasonable steps defence (PAYE)

For PAYE PLNs, a director may argue that they took all reasonable steps to ensure the company complied with its PAYE obligations and that the non-payment resulted from factors outside their control. This is a narrow defence but has been accepted in appropriate cases.

Evidence gathering

A PLN defence is won or lost on evidence. Key documents to obtain and review:

• Board minutes , showing what decisions were taken, by whom and when. Minutes recording genuine financial difficulty can support a “not deliberate” argument
• Management accounts and bank statements , to reconstruct the company’s financial position at the relevant dates
• Professional correspondence , advice from accountants or solicitors about the company’s tax position. Reliance on professional advice is a recognised defence
• PAYE and NIC payment records , to verify what was actually paid and when
• Correspondence with HMRC , any Time to Pay arrangements, payment plans or other engagement that shows the director was trying to address the liability
• Insolvency practitioner’s report , the Statement of Affairs and Director’s Questionnaire filed in the insolvency can contain information that supports or undermines a PLN defence

Role of the insolvency practitioner

Where the company is in formal insolvency, the IP holds many of the relevant records and has their own duties to report to the Insolvency Service on director conduct. The IP is not your enemy in a PLN appeal, but they are not your ally either, their duty is to the creditors generally.

Directors should understand that the IP’s Director’s Questionnaire (D1) and Conduct of Director’s Return (CDR) may have been filed with the Insolvency Service and HMRC. These documents can be used by HMRC in PLN proceedings. If you completed these forms without legal advice, review them carefully for any inadvertent admissions before your PLN appeal hearing.

In some cases the IP may have their own misfeasance or wrongful trading claim against you running alongside HMRC’s PLN. Where both are live simultaneously, coordinating the two defences is important to avoid inconsistent positions.

Recent case law

The following cases illustrate the current direction of FtT and Upper Tribunal thinking on PLNs:

• Roberts v HMRC: the Tribunal’s approach to late appeal applications in PLN cases, confirming that genuine ignorance of the appeal right can constitute a good reason for delay, but the merits of the underlying appeal will also be considered
• Inzani v HMRC: addressed the causation requirement for NIC PLNs, finding that HMRC must prove a direct link between the named officer’s conduct and the specific non-payment, not merely that the company was generally badly run
• Sandhar v HMRC [2017] UKFTT 533: confirmed that a director who genuinely delegated financial management responsibilities to a co-director may not satisfy the “neglect” test, particularly where there was no positive reason to doubt the co-director’s competence
• Carlisle Mansions: addressed procedural requirements for PLN notices, confirming that a notice which fails adequately to identify the conduct alleged may be challenged on formal grounds

FtT appeal procedure

If HMRC’s internal review does not resolve the PLN or you choose to proceed directly to Tribunal, the FtT process works as follows:

1. Notice of appeal filed with the Tribunal within the appeal window (or with late appeal application)
2. Case management directions , the Tribunal issues directions for exchange of documents and witness statements
3. Hearing , typically listed 6–18 months after the appeal is filed, depending on the Tribunal’s workload. Hearings are usually one to two days for a PLN case
4. Decision , issued in writing, usually within weeks to months of the hearing
5. Permission to appeal to Upper Tribunal , on a point of law only, with permission of the FtT or the Upper Tribunal

The FtT is less formal than a High Court hearing, but it is a serious legal proceeding. HMRC is typically represented by experienced Presenting Officers or counsel. Directors who appear without specialist representation are at a significant disadvantage.

Negotiation with HMRC and offers in compromise

Not all PLN disputes need to go to Tribunal. HMRC has discretion to withdraw or vary a PLN and settlement discussions can occur at any stage. Factors that may make HMRC willing to settle:

• Genuine factual uncertainty about the director’s role and conduct
• Doubt about causation
• The director’s limited means making collection uncertain
• The costs and delay of Tribunal proceedings

A negotiated settlement typically involves a reduced amount rather than full withdrawal, with payment terms agreed. It is important that any settlement is properly documented to prevent HMRC revisiting the same matters later.

Co-director apportionment

Where PLNs have been issued to multiple directors for the same underlying debt, HMRC can only collect the debt once in aggregate. In practice, directors can negotiate how the liability is apportioned between them, which may reduce each individual’s exposure significantly. Where one director had greater responsibility for the non-payment, that director may bear a larger share; a genuinely passive director may achieve a lower apportionment.

Related guides

• Director personal liability: the complete guide
• Section 455 charge on directors’ loan accounts
• Directors’ loan account investigations
• All resources
• Our PLN defence service
• HMRC penalty calculator

Frequently asked questions