One of the well-known benefits of conducting a trade through a company rather than as a sole trader is the protection available by way of a ‘corporate veil’. This means that the company is responsible for its rights and duties (including the debts), not the individuals who are connected to the company.
However, in certain cases HMRC has the power to lift the corporate veil and personally pursue certain individuals of a company for liabilities relating to corporate national insurance contributions (NICs).
HMRC took this action in the case of Howick v HMRC [TC08531], the First-tier Tribunal (FTT) allowed the lifting of the corporate veil by HMRC, meaning that Mr Howick was personally liable for the NICs of his company (S P Surface Finishers Limited). This debt was captured by way of a personal liability notice (PLN) issued to Mr Howick.
Mr Howick was appointed as a director of S P Surface Finishers Limited on 13 April 2015. Until March 2015, the company deducted PAYE and NICs on a monthly basis from the payments made to its employees and paid this to HMRC. The first amount which was not paid on time was the payment due on 19 April 2015. The real time information (RTI) submissions continued to be filed (up to July 2016), and PAYE and NICs were deducted from employee wages, however these amounts were not paid to HMRC. The total NIC amounts under dispute at the FTT were circa £65k.
On 4 April 2018, HMRC wrote to Mr Howick to advise that an enquiry had been opened into his potential personal liability for the NICs owed by S P Surface Finishers Limited. Under these types of enquiries, various questions are asked regarding the individual’s role in the company including their oversight or involvement with the financial or payroll responsibilities. The taxpayer does not need to be a director of the company (although Mr Howick was), if the individual substantially manages the affairs of the company or even if the individual is someone with whose direction or instruction the directors were accustomed to act, they could be served with a PLN.
These types of notices can be disputed so long as sufficient evidence is present which shows that the failure to pay the NICs was not down to the individual’s involvement. However, in this case, Judge Bailey noted that Mr Howick had sufficient oversight or involvement with the finances of the company. He had access to the reports that informed him of the amount of PAYE and NICs to pay and the deadline. He was also aware from the management reports that the PAYE and NICs were not being paid.
Whilst this case is not highly unusual or controversial, it is a timely reminder of HMRC’s powers in the collection of unpaid NICs through a corporate structure. A PLN is a useful tool in HMRC’s fight against the dissolution of companies to avoid paying tax debts. This case reinforces HMRC’s willingness to issue such notices, and to ensure that individuals involved with the management of a company are held personally liable.