Joint and Several Personal Liability Notices: A Growing Area of Risk for Directors
HMRC has become increasingly assertive in its approach to recovering unpaid tax, and one area where we are seeing more activity is the use of Personal Liability Notices (PLNs). These notices allow HMRC to transfer certain company tax debts to directors and others involved in the management of a business.
For directors who already face the pressure of a struggling company or an uncertain trading environment, a PLN can introduce significant personal financial exposure. This article outlines how they work, when a notice might be issued, and the key points directors should consider if they receive one.
What is happening in practice?
Across the market, there has been a noticeable rise in HMRC interventions involving PLNs. Over recent months, we have seen multiple examples of directors receiving notices that attempt to make them personally liable for:
- Outstanding tax owed by companies that have gone into liquidation
- Tax liabilities of current trading companies, not only at the date of the notice but also potentially for future liabilities for up to five years
The consequences can be severe. A PLN can expose an individual to liabilities they did not anticipate and may not have the means to meet.
When can HMRC issue a PLN?
HMRC’s powers come from the Finance Act 2020. A notice can be issued where a company is already insolvent or is considered at risk of becoming insolvent. There are three broad situations in which a PLN may be used:
- Tax avoidance or evasion
- Facilitating avoidance or evasion
- Repeated insolvency and non-payment
It is the third category that is giving rise to the majority of new cases, and it is the area most relevant to directors of smaller or distressed businesses.
Repeated insolvency and non-payment
A director may be issued a PLN if a series of conditions are met. In simplified terms, HMRC must believe that:
- The director has been involved in at least two previous companies in the last five years that entered insolvency owing tax or failing to submit returns
- A new company is trading in a way HMRC considers similar to those earlier entities
- The director is involved in the new business
- At least one of the older companies owed more than £10,000 in tax, and that liability represented more than half of its unsecured debts
If HMRC considers these criteria satisfied, the director may be made jointly and severally liable for the new company’s tax liabilities as well as the unpaid tax of the previous businesses.
What can directors do if they receive a notice?
A PLN is not the final word. Directors have formal routes to challenge HMRC’s decision:
- Requesting a review. This is carried out by an HMRC officer not previously involved in the case.
- Appealing to the first-tier tribunal (tax). A more formal process, with strict deadlines.
It is also possible for the director to participate in any appeal concerning the underlying tax assessment itself, even if the company (or its liquidator) chooses not to pursue it.
Section 121C notices: another area to watch
In addition to PLNs, HMRC may also pursue directors personally under Section 121C of the Social Security Administration Act 1992. These notices relate to unpaid PAYE or NIC, where HMRC believes the failure to pay was due to fraud or neglect by the individuals running the company.
Again, HMRC must examine all the circumstances, and a full explanation of the events leading to non-payment can make a meaningful difference to the outcome.
Why understanding the detail matters
The legislation behind PLNs and Section 121C notices is technical, and HMRC’s interpretation can vary depending on the facts. Directors may have strong grounds to argue that:
- The companies in question were not carrying on the same or a sufficiently similar trade
- One or more of the statutory conditions have not been met
- The financial problems that led to insolvency were caused by external events rather than misconduct or mismanagement
- The tax liabilities relied on by HMRC do not meet the statutory thresholds
Every case turns on its own facts. Understanding the company history, the director’s involvement, and the reasons for the earlier failures is essential.
Practical considerations for directors
Directors facing a PLN or similar HMRC action should seek specialist advice as early as possible. It is important to understand the strict deadlines for requesting a Review or lodging an Appeal, as missing these can limit your options significantly. You should also be prepared to provide a clear and accurate account of the circumstances that led to any insolvency or non-payment, as this detail often forms a central part of any challenge.
If your current business is trading in difficult conditions, keep a close eye on the tax position and ensure liabilities do not build up in a way that could attract further HMRC scrutiny. Early intervention can prevent patterns that may later be used as evidence of repeated non-payment.
If you have received a PLN or believe you may be at risk of one, obtaining advice quickly is essential. Bretts Business Recovery can help you understand the notice, assess your position, and work alongside specialist advisers to ensure your interests are properly protected.