Tax debts and liability for company tax bills

Running your own company provides some protection from personal liability for company debts. But a director’s position is not completely secure. For example, banks and other organisations can require personal guarantees from the directors for company borrowing. This means that if the company can’t pay its debts, the bank could require the director to meet any shortfall. By contrast, most trade creditors will be unable to claim against the directors if the company fails to pay.

If a company can pay its taxes as they fall due all is well. But if the company is late with its tax payments or becomes insolvent HMRC has a number of options which could affect the directors personally. HMRC’s special powers here only apply to specific taxes – payroll taxes and VAT.

If the company is insolvent, there may be little HMRC can do to recover unpaid Corporation Tax. But where the company owes PAYE and National Insurance contributions, HMRC may take action against the directors (or other officers of the company) personally to recover the amounts due. If the business is VAT registered the company will usually pay VAT to HMRC. If the company gets into arrears with VAT payments, HMRC is likely to take recovery action and may require security (glossary). If the company becomes insolvent and ceases trading with unpaid VAT, HMRC may require security for VAT for any future business run by the directors.

From 6 April 2011, HMRC will also be able to require security for payroll taxes (PAYE and National Insurance Contributions).

Particular care is needed where a company is insolvent. This is considered in the tax debt section. Link to tax debt section