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The Corporate Veil Will Not Protect Those Who Wilfully Default on PAYE

Company directors are under a personal duty to ensure that National Insurance (NI) and Income Tax (IT) liabilities are met and the corporate veil will not protect them in the event of wilful default. In one case, two businessmen were hit hard in the pocket after they continued to pay themselves generous salaries whilst their company struggled and its IT and NI bills went unpaid for a year.

The men were joint owners and directors of a gardening and cleaning company that had expanded rapidly through acquisitions. Despite severe cash flow difficulties, they had paid themselves salaries that the company could not afford. No IT or NI had been deducted from their pay during the financial year in question. The company ultimately fell into administration leaving substantial IT and NI arrears.

HM Revenue and Customs (HMRC) took the view that the directors should be held personally responsible for those debts under the Income Tax (PAYE) Regulations 2003. The company’s IT and NI liabilities were transferred to them personally and they received demands for payment of more than £108,000 between them.

In rejecting their appeals against those decisions, the First-tier Tribunal found on the evidence that they had wilfully and deliberately procured the company to pay their remuneration without deduction of IT or NI in the knowledge that such deductions should have been made. In part due to their high salaries, the company had been persistently in arrears with its PAYE liabilities and quite evidently had not been in a position to pay IT and NI when they fell due.