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HMRC internal manual

National Insurance Manual

Class 1: Personal Liability Notices: Fraud and Neglect

Section 121C, Social Security Administration Act 1992

Under the above legislation for a Personal Liability Notice 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 the legislation and it is therefore necessary to look to case law for its generally accepted meaning. One case commonly referred to for the meaning of neglect is Blyth v Birmingham Waterworks Co, 1856, 11 Ex 781, p784:

‘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.’

In the Personal Liability Notice Appeal of Leslie Livingstone (TC00369) and the Decision published on 2 March 2010 the Tribunal considered ‘What is expected of a reasonable man in the context of National Insurance Contributions’ and in their decision stated:

‘Every employer, and that includes a limited company, has a statutory duty to deduct Income Tax PAYE and NIC where appropriate from wages of every employee and to make a remittance to HMRC no later than the 19t h of each month. That duty extends to a director who may be administering a company.’

A copy of the full tribunal Decision in the Leslie Livingstone appeal can be found at, http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4734 

The general term ‘fraud’ has a wide significance and there is no simple definition which covers the full range of conduct to which it may be applied. For HMRC purposes, it will generally constitute falsification with intent to deceive. The active intent to deceive may be so slight that the falsification differs little from that resulting from negligence. On the other hand, the falsification may be deliberately planned with the clear intention of deception by, for example, the omission, manipulation or invention of figures or other records.

The standard of proof required in Personal Liability Notice cases is that of the ‘balance of probabilities’. The legislation at Section 121D of the Social Security Act 1992 also states that, ‘the burden of proof as to any matter raised by a ground of appeal shall be on HMRC’.