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Corporate VAT penalties imposed on director

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HMRC can issue VAT assessments and penalties to directors using the personal liability notices (PLN), and will do so particularly where the limited company is in danger of being liquidated.

12th Nov 2021
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When is a PLN used?

A PLN is usually issued where HMRC has evidence of deliberate and concealed inaccuracies, and supressing sales would fit the definition of deliberate/concealed. It is a tool often used by HMRC where the company, which owes the VAT, is liquidated. The PLN allows HMRC to secure the assessed VAT personally from the Director in the form of a penalty based on 100% of the VAT liability in the company.

A limited company normally protects the director(s) from financial loss, and businesses fail for many reasons owing sums of money to suppliers and to HMRC.  As a creditor HMRC may resist a striking off petition for the company, but ultimately that is one of the benefits of incorporation - risk management.

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Replies (5)

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By Paul Crowley
12th Nov 2021 18:01

Much appreciated
Directors do seem to assume the sticky stuff can only land on and dies with the company

Thanks (1)
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By hyper10
15th Nov 2021 10:46

I think HMRC often feed these into the public psyche to help ensure compliance, the bar is still set pretty high on invoking these notices, in basic terms, you really need to take the p*ss before they press them. We had a customer go bust and initial threats of this soon disappeared as although he owed a shed load of money to everyone inc HMRC, he was basically inept as opposed to dishonest. I think it's a nice myth they roll out and I'd imagine they get a bit more paid with it and leave the rest of us saps well back in the queue.

Thanks (3)
Replying to hyper10:
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By Jason Croke
18th Nov 2021 12:09

Not sure HMRC "feed" this type of tale in order to keep taxpayers compliant, nor is it a myth, these are all public domain tribunal cases, which means taxpayers are surprised to see themselves on the hook for what they thought were corporate debts and are challenging this in the tax tribunals....another PLN case here https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08297.html

I do agree that you have got to go some distance to provoke HMRC into issuing PLN's. A genuine business going under through ineptitude remains safe from PLN's, but my article was to show that HMRC can attack under "fiduciary duty" and whilst such attacks still operate to a very high bar, that is often because the fraud/misdeed is obvious to prove and I doubt we'd see PLN's for just being stupid....equally, there is a thin line between stupid and deliberate disguised as stupid!

Thanks (0)
Replying to Jason Croke:
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By hyper10
18th Nov 2021 15:02

I suppose it's what threshold is applied and how devious the behaviour has been is perhaps subjective, my point was that for the average person running a business honestly and that business failing, assuming honest accounting, it is unlikely that a PLN would be the first issue they'd have.
I used "often" and as this qualified my view but it is no different than HMRC investigating a medical practice on a certain street and suddenly everyone on that street hurriedly "tidying" their affairs. It makes good business sense.
the beauty of a comments section is the forum for alternate views

Thanks (1)
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By Malcolm McFarlin
15th Nov 2021 17:18

It seems to me that Azam Ali was foolish to ignore the warning signs of not brokering some kind of agreement with HMRC to reduce the quantum and the penalty via ADR. The liquidator negated all hope of any kind of settlement when the company was put into liquidation, thereby extinguishing the right of appeal and the right of ADR. The HMRC VAT assessment seems to be a typical HMRC 'telephone number assessment' which was probably capable of being challenged via ADR by bringing in the various government departments such as VAT, corporation tax and PAYE. It may be the case, although only an assumption on my part, that wages were being paid for from the suppression of sales and ADR may have provided some scope for reducing the corporation tax liability and ascertaining if there were any flaws with the VAT assessment. It is interesting to note that ADR was successful with regard to Azam Ali's personal tax liability which suggests that HMRC were satisfied that he was not creaming off the money for himself although the tribunal does not comment further on this point. However, many directors believe they can walk away from a debt and this appeal highlights that they are unable to do so.

Thanks (1)