Many directors assume that once a company has been liquidated, their involvement comes to an end. In practice, that is often not the case.
It is becoming increasingly common for HM Revenue and Customs (HMRC) to review the affairs of a company after liquidation and consider whether personal liability should follow. This usually arises where there are substantial unpaid PAYE, National Insurance, VAT and other types of tax liabilities, and where HMRC believe the director’s conduct deserves closer scrutiny.
In one recent type of scenario, HMRC were looking to recover more than £250,000 from a director or directors after the company had entered liquidation. The director had assumed the debt would remain with the company. Instead, attention turned to how the business had been managed in the period leading up to insolvency.
A Personal Liability Notice ( PLN ) is one of the mechanisms HMRC can use in these circumstances. It is not simply about the size of the tax debt. It is about whether the conduct of the director justifies HMRC seeking to transfer liability from the company to the individual and make that individual the director or directors personally liable.
In assessing that, HMRC usually look well beyond the headline figures.
They will want to understand whether the company continued trading while it was unable to pay PAYE, VAT or other liabilities as they fell due. If tax arrears were increasing month after month and years in some cases while the business carried on trading, that would attract attention very quickly.
They will also look closely at how HMRC were treated compared to other creditors. For example, if suppliers, landlords or other key parties were paid while tax liabilities were left to build up, HMRC may ask why those decisions were taken and whether there was any proper justification for that approach.
The accuracy and timing of tax filings will also matter. Late returns, missing returns, repeated errors, estimated figures or inconsistent submissions can all strengthen HMRC’s concerns.
Another important factor is whether there is any repeated pattern of behaviour across more than one company.
HMRC will also examine what happened to company funds in the period before liquidation. This includes not only payments to third parties, but also payments to directors themselves. Where directors have continued to take salary, dividends or other drawings at a time when tax liabilities were not being paid, this is likely to be questioned very carefully.
They will also consider whether the director can properly explain the decisions that were made at the time. That means looking at the available records, including accounts, bank statements, correspondence and tax submissions, to understand what the director knew and why certain decisions were taken.
HMRC are not looking for perfection. They are, however, looking for reasonable behaviour in difficult circumstances. Where a director can show that decisions were made responsibly, there is often room to challenge or negotiate the outcome. Where the records are poor or the explanations are unclear, the risk becomes far greater.
Receiving this type of correspondence can be deeply unsettling, particularly where the figures involved are high. However, these cases are rarely as simple as the initial letter may suggest.
Early engagement and a carefully structured response can make a significant difference.
Disclaimer
This article is provided for general information purposes only and does not constitute legal or financial advice. Each situation will depend on its own facts and specific circumstances, and you should not rely on the above without taking appropriate professional advice.
If you would like to discuss your situation in confidence, please contact:
Navigate Business Recovery Limited
Office: 0330 236 9937
Mobile: 07961 116321
Email: vee@navigatebr.com
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