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Who is liable for PAYE and NIC deductions that haven't been paid to the Revenue?

If a Limited Company deducted tax and nic from it's staff but didn't pay it to the Inland Revenue - and the company then went bust - are the directors of that company liable for the PAYE debts or are they protected by their "limited liability"? Some of the IR guidebooks suggest that the Directors ARE responsible - is this correct?
Iain Lindsey

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17th Nov 2003 17:10

general insolvency rpinciples will apply
The reference on the Inland Revenue website, given below, refers to wilful default or neglect by directors.

However, general insolvency principles will also apply. These state two main ways of recovering money from directors - fradulent trading and wrongful trading. Both of these are effectively trading whilst insolvent. The former requires intent to defraud creditors, but the latter does not - it simply requires trading at a time when they should have ceased.

This means that if the directors incurred the tax/NIC's liability at a time when they knew or ought to have known that there was no real prosect of the company avoiding insolvency, then they can be pursued personally for those debts.

Ray

Ray Levy
FREEDMAN GREEN
Solicitors

phone: 020 7625 6003
fax: 020 7372 3861
email: [email protected]

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16th Nov 2003 10:38

I agree with John
The issue here is not one of failure to deduct, but of failure to account to the Collector for the money so deducted. The Revenue would not be able to justify a Reg. 42 determination where the employees have actually already suffered full deduction. There is a slight possibility that a Reg. 42 determination in the NET amount could be made to stick (i.e. argue that the net receipt after withholding tax and NI was in fact a gross wage from which no deductions have been made), but this could really only apply to directors who were complicit in the failure to pay over to the Collector.

The true issue is that the Collector is a creditor of the company. The level of negligence or fraud will determine the extent to which the directors can be made personally liable.

There is also, if the failure to pay over the amounts deducted was wilful and calculated, the possibility of criminal prosecution of the directors for fraud on the public revenue.

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By Anonymous
16th Nov 2003 19:00

a sting in the tail......
It is possible for the Inland Revenue to claim ANY unpaid national insurance from the Directors personally.

This applies in respect of all employees and not just that national insurance relating to the directors.

Check this out at

http://www.inlandrevenue.gov.uk/manuals/cvlmanual/cvlm4250/cvlm4250.htm

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By Anonymous
14th Nov 2003 17:42

Yes, possibly..........
Where remuneration has been received and
an under-deduction has taken place the Inland Revenue may make a a direction under Regulation 42(3) S.I 1993 No 744 (The Income Tax (Employments) Regulations 1993) where
there has been a wilful failure on the part of the employer to deduct tax and the employee was aware that the wilful failure was taking place. The ruling switches liability from the company to individuals, normally the directors. There is no right of appeal against such a direction although a Judicial Review may be brought.

Similar regulations exist for NIC.

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By Abacjm
15th Nov 2003 03:45

PAYE Deductions Not Paid over
I think Andrew is confusing two issues. It is alreay admitted that deductions have taken place, BUT they have not been paid over. The liabilities reamin as a preferential charge to be paid by the liquidator from whatever he generates from the disposal of the company.
Director's liability is limited, except in the case of wilful fraud in carrying out their duties.
Similarly, for shareholders who are not directors.

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