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HMRC internal manual

Employment Status Manual

Employment intermediaries travel expense provisions: transfer of debt to directors and issue of a personal liability notice

Income Tax (Earnings and Pensions) Act 2003, section 339A

Income Tax (Pay As You Earn) Regulations 2003, Chapter 3B

Section 688A(5) ITEPA as amended by section 339A(2) of ITEPA

Issuing a ‘personal liability notice’ to company directors

Failure to apply the provisions of section 339A of ITEPA correctly may result in a person other than the employment intermediary becoming liable for the tax debt.

If that party is a company (which includes limited liability partnerships) and it fails or defaults from paying to HMRC the relevant PAYE and/or NICs debt by the required date, then HMRC may hold the director(s) or officer(s) of the company personally responsible for paying the specified amount of the PAYE debt, plus any specified interest. The interest is at the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 86 of Taxes Management Act and runs from the date the notice is served.

In such instances, HMRC may serve a ‘personal liability notice’ on any person who was a director of the company on the relevant date. The relevant date in relation to a PAYE debt is the date on which the first payment is due on which PAYE is not accounted for.

The notice will required the director to pay to HMRC the specified amount of PAYE debt owing and any interest accrued within 30 days of the date the notice is served.

HMRC can serve a ‘personal liability notice’ on more than one director of the company in respect of the same PAYE debt, for which all directors are both jointly and individually liable to pay.

Regulations 97Z(L) and 97Z(M) of Income Tax (Pay as You Earn) Regulations 2003, Part 4, Chapter 3B, and Part 6 of the Taxes Management Act 1970 contain the relevant legislation under which HMRC will recover the sums due under a ‘personal liability notice’ and where appropriate, repay any surplus amounts collected plus interest accrued.

MSCs or those that would be if section 61B(1)(c) were disregarded

Where the intermediary is an MSC or would be if section 61B(1)(c) was disregarded, when there is any unpaid PAYE debt the MSC transfer of debt provisions apply. For guidance about those provisions see from [ESM3615].

This means debts can be transferred to persons who include the:

  • MSC directors, and
  • MSC provider (or the person that would be if the intermediary would be an MSC disregarding section 61B(1)(c) ITEPA) and their directors

 

Appealing a personal liability notice

There are appeal rights for persons served with a ‘personal liability notice’. A notice of appeal must be submitted to HMRC within 30 days beginning on the day the ‘personal liability notice’ is served and must contain the grounds of appeal which are either that:

  • all or part of the specified amount does not represent an amount of relevant PAYE debt, of the company, to which regulation 97ZI of  the Income Tax (Pay As You Earn) Regulations 2003 applies, or
  • the person who was served the ‘personal liability notice’ was not a director of the company on the relevant date

 

A person may not appeal a ‘personal liability notice’ if it has already been determined on appeal by the company that the:

  • specified amount is a relevant PAYE debt of the company, and
  • the company did not deduct, account for, or (as the case may be) pay the debt by the time the company was required to do so

 

On appeal, a tribunal may:

  • uphold or quash the personal liability notice, or
  • where the appeal is on the grounds that part or all of the specified amount does not represent an amount of a relevant PAYE debt, the tribunal may reduce or increase the specified amount to represent the amount of the relevant PAYE debt of the company for which the director is liable

 

Where the intermediary is an MSC or would be if section 61B(1)(c) was disregarded, the appeal rights against the transfer of debt provisions are the same as those in the MSC legislation - [ESM3640].

Withdrawal of a personal liability notice

A ‘personal liability notice’ (or in the case of MSCs a transfer notice) may be withdrawn if it is quashed by a tribunal or if an officer of HMRC considers it appropriate to withdraw the notice. In the event that an officer of HMRC withdraws the notice, then HMRC must give notice to the person upon whom that notice was served.

Interpretation

In relation to Chapter 3B, Income Tax (Pay As You Earn) Regulations 2003 concerning ‘Certain debts of companies under section 339A of ITEPA (Travel expenses of workers providing services through employment intermediaries):

  • company includes a limited liability partnership
  • director has the meaning given by section 67 of ITEPA
  • personal liability notice has the meaning given by regulation 97ZI(2)
  • the specified amount has the meaning given by regulation 97ZI(2)(a)

 

Further information

Fraudulent documents - [ESM5650]

Liability of the parties and transfer of debt provisions - [ESM5660]