Schedule 41 of the Finance Act – The HMRC Powers to pursue Directors personally.

We recently reported how in our experience we have seen HMRC increasingly use its powers to pursue directors personally to recover revenue.

Schedule 41 of the Finance Act allows HMRC to seek recovery of lost revenue personally from an officer of a company. Where a company has gone insolvent or where the company has been struck off, HMRC will consider ways to recover lost revenue and increasingly the route they have pursued is from the personal assets of Directors of the company.

Directors should take care when dealing with any obligation of the company in respect of tax affairs. Ignorance is not defence as Directors are expected to have a good handle on all financial affairs.

HMRC enforces a range of penalties dependant on several factors including their belief that the company has deliberately concealed information or indeed how helpful the company has been at various stages of the process.

When seeking lost revenue from Directors, HMRC will issue a ‘Wrongdoing Penalty Charge’, with a detailed penalty explanation schedule.

Each ‘wrongdoing’ will be assessed individually

For example, “Unidentified bank receipts that had not been declared, no explanation received therefore treated as standard rate sales”

The potential lost revenue from this wrong doing is calculated and then the penalty range applied based on.

Behaviour – the behaviour that led to the wrong doing and

Disclosure – whether the disclosure was prompted or unprompted.

The next stage is to look at the quality of the disclosure i.e.

  • Telling HMRC about it
  • Helping HMRC understand it
  • Giving HMRC access to records

A graded discount is applied for each element which is then taken away from the total potential lost revenue. It is this sum that the Director could be personally liable for. However, taking the above into consideration there is the possibility of a penalty loading being as low as 20%.

For more information regarding the taxes for which obligations relate and also a breakdown of the percentage reductions scales visit the HMRC website

Please contact us for advice