Limited liability is one of the most fundamental principles of UK company law. A company is a separate legal entity, and its directors and shareholders are generally protected from personal liability for its debts.

That protection, however, has never been absolute. HMRC has long held powers that allow it to look through the corporate veil and pursue individuals directly where certain conditions are met.

Recent data suggests those powers are being used with increasing frequency, and the financial exposure they create can be severe.

A Personal Liability Notice, or PLN, is the mechanism by which HMRC makes a director or officer of a company personally liable for unpaid corporate taxes.

The most commonly cited taxes are Class 1 National Insurance contributions (NICs) and VAT, though PLNs can also be issued in relation to PAYE, corporation tax and other liabilities.

The trigger: fraud or neglect

HMRC can issue a PLN only where it can demonstrate that the underpayment of the relevant tax arose as a result of fraud or neglect on the part of the company’s officer.

That is a significant legal threshold. Commercial failure alone is not enough. The insolvency or financial distress of the company does not, by itself, justify the issuance of a PLN.

In practice, HMRC often takes a broad view of what constitutes neglect. Where a director continued to trade while tax arrears were accumulating, without engaging with HMRC or seeking professional advice, HMRC may argue that the failure to address the position amounts to neglect in the statutory sense.

That argument is regularly challenged, and specialist advice at an early stage can make a material difference to the outcome.

Rising values and volumes

Data obtained through a freedom of information request by accountancy firm RSM UK reveals the scale of HMRC’s use of PLNs in the 2024/25 tax year. The total value of PLNs issued across all taxes in that year was just under £84.5 million.

VAT accounted for the largest share, with 298 notices issued totalling over £70 million. Corporation tax generated 80 notices worth around £6.4 million. PAYE and other heads of duty made up a smaller number.

For NIC-specific PLNs, the trend over recent years is striking. The value of NIC PLNs issued in 2024/25 was £6.26 million, compared with £2.07 million in 2023/24 and £3.42 million in 2022/23.

That represents a more than 200 per cent increase in the value of NIC PLNs in a single year. RSM UK, whose research was subsequently covered in Taxation magazine, noted that PLNs may once have been considered a niche enforcement tool but can no longer be treated as such.

Joint and several liability: an additional exposure

The Finance Act 2020 introduced an additional power that operates alongside PLNs but with a broader reach.

Joint and Several Liability Notices (JLNs) allow HMRC to pursue directors and associated persons directly in situations involving insolvency, suspected misuse of the insolvency framework or tax avoidance structures.

Where managed service companies, offshore payroll arrangements or disguised remuneration schemes are involved, HMRC can use these powers to pursue not only the director of the company in question, but others associated with the arrangement.

The combination of PLNs and JLNs means that the range of individuals who can face direct personal liability for corporate tax debts has widened considerably over the past five years.

The consequences of a PLN

The financial exposure created by a PLN is personal and direct. HMRC transfers the liability to its Debt Management team for collection if a valid appeal is not made in time.

The consequences can include personal bankruptcy, damage to professional reputation and, in cases involving director disqualification proceedings, restrictions on future business activities.

For directors who are already concerned about the position of their company, or who have received correspondence from HMRC indicating that a PLN may be under consideration, taking immediate advice from a specialist is essential.

There are grounds on which a PLN can be successfully challenged, including where the notice is invalidly issued, the quantum is wrong or where the director can demonstrate that the tax shortfall did not arise from their fraud or neglect. Those appeals must be made promptly and with clearly stated grounds.

Practical steps for directors

The most effective protection against a PLN is proactive engagement. Directors who are aware that a company is accumulating tax arrears should engage with HMRC at the earliest opportunity, explore Time to Pay arrangements and take proper professional advice.

Demonstrating that decisions were made in good faith, with appropriate advice and transparent communication with HMRC, provides a strong evidential basis for defending against a PLN if one is subsequently issued.

Where a company is approaching insolvency, engaging a licensed insolvency practitioner early allows options to be explored in an orderly way.

A properly managed insolvency process, with appropriate documentation of the decisions taken, significantly reduces the risk of HMRC later alleging that tax shortfalls arose from neglect by the director.

Our restructuring and insolvency team works closely with directors who are facing HMRC enforcement action or who want to understand their position before matters escalate. Early advice is always preferable to reactive damage limitation.