When can a director be held personally liable for tax debts?

One of the benefits of a company or other incorporated entity is that it shields individuals from being held liable should there be any lawsuits or other debts incurred by the company (and outstanding when the company becomes insolvent). Where a company is investigated and found to have underpaid particular taxes HMRC may as long as specific conditions are met transfer the liability for paying the outstanding taxes (and penalties) to ‘liable officers’ of the company.

The legislation we discuss in this article in effect pierces the corporate veil and allows HMRC to hold directors of a company personally liable for corporate debts. A general rule is that HMRC must demonstrate that the director(s) deliberately did not pay the relevant taxes to HMRC. In some cases however such as VAT fraud by a third party no such proof is required. There are a range...