Could you be personally liable for your company taxes?

Fortuous • Oct 11, 2022

One of the key reasons you trade through a limited company is to reduce your liability as a director. And one key benefit of getting incorporated as a company is that you – as a company director – are not generally liable for any amounts owed by the company.

But, did you know that, under some circumstances, HM Revenue & Customs (HMRC) can transfer the liability for some unpaid taxes to you as an individual?.

What’s a Joint and Several Liability Notice?

Under certain circumstances, HMRC can issue a  Joint and Several Liability Notice (JSLN)  to any director, shadow director or manager. This JSLN effectively transfers liability for taxes owed by the company to you personally. That means your personal assets could be at risk, and (in a worst-case scenario) these company debts could end up bankrupting you!

The JSLN legislation covers liabilities in respect of periods ending on or after 22 July 2020, regardless of when those periods started.

Notices can be given to you in respect of:

  • A company that’s insolvent or likely to become insolvent, and has entered into tax avoidance arrangements where Disclosure of Tax Avoidance Schemes (DOTAS) and General Anti-Abuse Rule (GAAR) rules are likely to apply.
  • A company that’s insolvent or likely to become insolvent, and has engaged in tax evasion activities, such as failing to register for taxes.
  • Cases where two previous businesses have been insolvent with unpaid taxes, with a successor company carrying on similar activities.
  • A case where the company has been issued with a penalty for facilitating tax avoidance or evasion, or proceedings has been commenced in respect of such penalties under DOTAS or GAAR.
  • a tax charge has been applied in respect of Covid support payments to which the company was not entitled.

These notices can be issued where the company has undertaken any tax avoidance measures, receives excess Covid support payments, or where there have been repeated insolvency or non-payment cases involving the same individuals.

Once a notice has been issued, you would be jointly and severally liable with the company in respect of all tax liabilities at the date of the notice. You would also be liable for any further tax liabilities arising in the next five years, or until the notice is withdrawn.

How would being served a JSLN affect you?

Suddenly becoming personally liable for your company’s tax liabilities is never going to be good news. The impact of a JSLN can be significant.

Once a notice has been issued to you, your personal assets are at risk. HMRC will do its best to reclaim any unpaid taxes owed by the company and – theoretically speaking – HMRC can claim against you without pursuing the company first.

Talk to us about any risks you may face around JSNLs

If a JSLN is issued, you should contact us immediately. You only have a window of 30 days to ask for a review of the decision to issue the JSLN, or to appeal against it.

We’ll be happy to talk through your situation and help you communicate with HMRC.

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