HMRC internal manual

National Insurance Manual

NIM12204 - NICs Personal Liability Notices: neglect

Section 121C of the Social Security Administration Act 1992

For a Personal Liability Notice (PLN) to be issued there must be evidence to show ‘on the balance of probabilities’ that the failure to pay the contributions due was attributable to the fraud or neglect of an individual officer of the company.

Neglect is not defined in law and we therefore have to look to case law for its generally accepted meaning.

In the decision by the Upper Tribunal in HMRC v Charles Michael O’Rorke, FTC/39/2012 Mr Justice Hildyard considered the meaning of neglect under the legislation at section 121C of the Social Security Administration Act 1992 and found that this involved an objective test as to whether there had been a departure from the standard of care set out by Alderson B in Blyth v Birmingham Waterworks (1856) 11 Exch. 781 at 786, where it was said:

“Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The defendants might be liable for negligence, if, unintentionally, they omitted to do that which a reasonable person would have done, or did that which a person taking reasonable precautions would not have done.”

Under the legislation any failure to pay on time could constitute neglect as a taxpayer who knows of an obligation - in this case the statutory obligation to pay National Insurance contributions (NICs) by a prescribed date - and fails to satisfy that obligation could be regarded as being to some degree negligent.

However, in practice, and in order to protect officers of genuinely failed companies and those regarded to have taken all reasonable steps to minimise the company NICs debt, a PLN will only be issued where HMRC believes that the failure to pay the contributions due was attributable to fraud or serious neglect.

There are certain factors that either individually or combined may be taken as indicators of more serious levels of neglect. These include:

  • no payments of PAYE or NICs for the full period of trading; or non-payment over a prolonged period of time
  • at the time of the failure to pay the contributions due the body corporate was making payments to, or for the benefit of, one or more officers of the body corporate, connected persons or associated businesses
  • where the contributions due to HMRC were knowingly and deliberately withheld
  • where one or more officers of the body corporate have been associated with other businesses that have failed to comply with their statutory PAYE and NIC obligations
  • where we are dealing with a phoenix company (see NIM12206)
  • at the time of the failure to pay the contributions due the company continued to make payments to other creditors
  • where the evidence points to the PAYE and NICs that should have been remitted to HMRC being used to fund the company activities and boost cash flow
  • Where we are dealing with an action that placed a significant NICs liability on the body corporate at a time that the officer would, or should have known that there was no reasonable prospect of the body corporate being able to satisfy the resulting NICs liability. For example, the clearing of an overdrawn director’s loan account through the declaration of a salary, just prior to liquidation.