When a company goes into liquidation owing money to Inland Revenue, many directors assume their personal assets are protected under limited liability.
However, that is not always the case. Depending on the circumstances, you (as a director) may be personally liable for tax debt, particularly when PAYE obligations have not been met, or director duties have been breached.
In this blog, we explore when tax liability can become personal, what directors need to know about the IRD’s powers, and why early communication is essential to avoid escalation.
When a company goes into liquidation owing money to Inland Revenue, many directors assume their personal assets are protected under limited liability.
However, that is not always the case. Depending on the circumstances, you (as a director) may be personally liable for tax debt, particularly when PAYE obligations have not been met, or director duties have been breached.
In this blog, we explore when tax liability can become personal, what directors need to know about the IRD’s powers, and why early communication is essential to avoid escalation.
The first is a criminal prosecution for non-payment of PAYE, which should have been deducted from employees’ salaries and paid to the government on behalf of your team. The second situation is where you have recklessly incurred debt, in breach of your duties as a director. You can therefore be held liable to the company’s creditors, including the IRD. In both cases, this liability falls outside the protection of the company’s limited liability structure, meaning your personal assets or earnings may be exposed to recovery action.
Practically, this happens very rarely in proportion to the number of company liquidations that occur each year. There are thousands of liquidated businesses annually, and most of those owe taxes to the IRD, which often acts as the “lender of last resort”.
Directors should not take comfort in that. The risk of criminal prosecution is significant, especially when there are more constructive ways to deal with the amount of tax owed.
Right now, the IRD is willing to negotiate. They are resolving many debts through:
The key message here is simple: communicate proactively with the IRD. If you owe them money, do not ignore it. Now is the time to engage, provide the necessary tax information, and explore payment options before the situation escalates.
If your company has fallen behind on its tax obligations and you’re unsure about your personal liability or the next steps, we can help.
Book your free 30-minute consultation today and get clear, practical advice on how to manage IRD debt before it becomes a personal problem.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
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