Mr S approached Gilbert Tax as he had received a personal liability notice in respect of debts owed to HMRC by a company of which he had been a director for a number of years. The amounts claimed by HMRC would have been ruinous to Mr S and would have led to bankruptcy if the amount had to be paid in full.
The company had used the PAYE and VAT to keep the business afloat by paying staff wages and suppliers following one of its main customers going out of business.
Mr S believed that with his fellow Directors he would eventually recover the position and the business would be able to catch up on the outstanding debt and it was always the intention to pay the outstanding amounts and nothing was hidden from HMRC. In fact, attempts were made to enter in to a time to pay arrangement with HMRC but this was rejected due to a combination of the business having a previous time to pay arrangement and the poor attitude of HMRC officers dealing with the case.
Mr S didn't benefit from the failure to pay HMRC and in fact he didn't take any salary from the business during the period of the problems.
This is a situation that often occurs (that is people using PAYE and VAT for cash flow purposes) and it is not unusual for businesses in this situation to fail.
HMRC often say that the Directors did this to gain an advantage whereas the usual reason is an attempt to save the business and protect jobs. HMRC often argue that the Directors have been negligent or fraudulent but the reality can be far from that as in many cases the Directors have been misadvised by a professional adviser. This leads to HMRC issuing personal liability notices for PAYE, NIC and VAT in order to collect the unpaid amounts from the Directors.
In the case of Mr S, Gilbert Tax immediately contacted HMRC to agree time for representations to be made for not only Mr S but his fellow directors. HMRC agreed to postpone action and enter in to a dialogue so that full consideration could be given to the situation.
Following research and discussions with the Directors about what had happened and their own personal circumstances Gilbert Tax made representations on behalf of the Directors to HMRC which allowed HMRC to enter in to negotiations regarding payment of the debt, in addition during the time elapsed Gilbert Tax had worked with the insolvency practitioner liquidating the company to displace estimated assessments put in place by HMRC and reduce the debt owing to HMRC.
Although there was a prospect of the Directors winning their case at Tribunal, following negotiations with HMRC a reduced payment was agreed and this was then divided up between the Directors, each accepting part of the responsibility for the debt.
In this case Mr S and his fellow Directors took a commercial decision to pay HMRC on a compromise basis rather than expend the time and money on a Tribunal hearing.
Had the Directors accepted HMRC's original notice the amounts would have been ruinous; the end conclusion was that they settled the problem with HMRC although they could have taken the matter to the Tribunal where they had some prospect of success but would have incurred additional fees.
It is important for anyone who receives a personal liability notice to speak to a professional before they make any representations to HMRC as this can make the difference between dealing with the matter in a controlled way rather than the problem getting out of hand.
© Gilbert Tax Consultants LLP 2018Registered in England & Wales No. 0C 309788VAT No. 847 880575
We are bound by the ethical guidelines of the Chartered Institute of Taxation and any other regulatory requirement. We endeavour to provide accurate information, however,
the content of this site is for general information only and should not be taken to be tax or legal advice which must always be tailored to the appropriate circumstances of each individual.