While the limited company structure is designed to place a clear separation between the directors and the company they run, there are exceptions to this. In certain cases, the corporate veil can be breached making directors personally liable.
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When Can HMRC Hold a Director Responsible for Unpaid Tax?
In most cases, directors are not responsible for tax arrears, as these debts are those of the company and not the individual
If a company cannot pay its VAT, for example, it may become insolvent and be forced to close but the directors themselves will not be help responsible for those debts.
HMRC does have powers, however, to make directors personally liable for VAT, PAYE, National Insurance contributions and corporation tax arrears where they detect the presence of fraud or neglect.
One common example of this would be a director who continues to pay their own salary while deliberately not paying HMRC, despite suspecting that the company is officially insolvent. Another example might be paying one connecter party such as a family member while not paying HMRC what is owed.
Examples of When HMRC Can Make Directors Liable for Company Tax
The Finance Act of 2020 made directors liable via the use of a joint liability notice under certain conditions.
- Where a director has had multiple insolvencies involving outstanding taxes
- If a new company, within five years of a previous liquidation, becomes insolvent with taxes owed and the same director
Personal liability may also be considered in cases of:
- misfeasance
- wrongful trading
- fraud
- ‘preferential’ payments after a director realised the company was insolvent
- tax evasion