Personal liability for Unpaid National Insurance Contributions (NICs)
HMRC may issue a personal liability notice (PLN) requiring an officer of a company (who was serving at the time of default) to pay a specified amount in respect of Class 1, 1A or 1B NICs that the company has failed to pay together with penalties and interest on the unpaid NICs.
“Officer” is defined to include directors, company secretaries, shadow and de facto directors, and managers.
Criteria for Issuing a Personal Liability Notice
To issue a PLN, HMRC must first determine that the company’s failure to pay is attributable to “fraud or neglect” on the part of the intended PLN recipient. A PLN may be appealed to the First-tier Tribunal on the ground (among others) that “the failure to pay … was not attributable to any fraud or neglect on the part” of the appellant.
An Objective not a Subjective Criteria Applies
The Upper Tribunal (Tax and Chancery Chamber) held recently in the case of HMRC v O’Rorke [2013] UKUT 0499 (TCC) that an objective test of neglect applies when determining whether a company’s failure to pay national insurance contributions (NICs) can be attributed to neglect on the part of a director making him personally liable for all or part of the unpaid NICs. This standard will not be adjusted downwards to meet particular circumstances of a specific officer (such as mental health issues) and therefore any such director may need the support of fellow directors in such cases to avoid personal liability.
Facts of the Case
The taxpayer in HMRC v O’Rorke was the finance director of a company that went into liquidation in March 2007 owing HMRC unpaid NICs. In 2009, HMRC issued a personal liability notice (PLN) to the taxpayer for £218,593.77. The taxpayer appealed to the PLN on the ground that the company’s failure to pay was not attributable to any fraud or neglect on his part, as he had been suffering from an addiction that affected his behaviour and that ought to be considered when assessing whether he had been negligent.
The tribunal held that “neglect” was to be given its ordinary, objective meaning, constituting a standard of conduct and not a subjective state of mind and hence the director was personally liable.
Notice: This blog is written for information purposes only and it is not (nor is it intended to be) advice. Readers should always seek independent advice on the particular circumstances of each case.
14 December 2014
