Personal liability notices - what can be done?

My client has received a personal liability notice (PLN) from HMRC. He believes the notice refers to his company, but he doesn’t understand why he has been issued with a personal penalty notice which relates to the tax liabilities of a limited company. Is this a mistake?

Unfortunately for your client, this penalty notice is potentially valid.

The legislation behind this is at Schedule 41 para 22 of the Finance Act 2008. It says that where a penalty is payable by a company for a deliberate act or failure and this is attributable to an officer of the company, the officer is liable to pay the portion of the penalty as HMRC may specify by written notice to the officer. The initial penalty arises to the company under Schedule 24 Finance Act 2007 and Schedule 41 Finance Act 2008 allows this penalty to then be applied to the individual.

The term ‘officer’ here can mean a director, manager, secretary or any other person managing the affairs of the company.

The portion of the penalty can be up to 100% of the penalty or penalties levied on the company. In practice, we have seen HMRC seek to transfer all of the penalty to the company officer. HMRC cannot recover more than 100% of the original penalty. 

This means if there were two relevant officers, HMRC could not issue PLNs of 100% of the penalty to each. HMRC could for instance issue penalties of 50% to each officer, or any another split which it deems appropriate, provided the aggregate does not exceed 100%.

It seems your client is one of a growing number of recipients of PLNs. Our specialist tax consultancy team has seen an increase in HMRC tackling perceived deliberate errors at the corporate level by issuing PLNs, especially where liquidation or potential liquidation of the company is involved. 

However, your client should not despair as in certain circumstances it is possible to get the penalty notice cancelled on appeal. 

In the first instance, check that the penalty notice is valid and that HMRC have followed procedure, just as you would with the issue of any other penalty. This includes checking the notice was served by HMRC within the statutory time limit (as per Schedule 24 para 13(3) Finance Act 2007) and that the name and address stated on the notice are correct.

If the notice is valid, consideration should be given to challenging HMRC’s view of the alleged deliberate behaviour underlying the error made by the company.
 
The next step is to consider the basis for the underlying penalty. A PLN is only relevant where the company penalty relates to deliberate errors by the company. 

In order to challenge HMRC’s position, the director or liquidator of the company would need to appeal the underlying deliberate penalties on behalf of the company; it is not possible for the individual to appeal the PLN in isolation.

HMRC have internal targets to increase the quantity of deliberate penalties charged and we have seen a corresponding increase in PLNs issued, often where HMRC have not yet demonstrated deliberate behaviour. It is important to remember that the onus is on HMRC to prove that the behaviour is deliberate.

We have a proven track record in assisting clients with cancelling PLNs and have had significant success in challenging the underlying penalties which led to them.

Accordingly, if you have a client in receipt of a PLN, please ensure that you or your client calls us, so that we can review their particular fact pattern and advise on the best way to tackle this worrying issue. 
The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.