In normal operating circumstances, directors are not personally liable but if VAT was not paid due to fraud or neglect, and the company is (or is soon to be) insolvent, directors can be held personally liable for unpaid VAT.
This post is one of our most frequently visited so you are not alone in being concerned about the answer and any future impact on yourself personally. If you are a company director and you are concerned that you may become personally liable for VAT, please contact our specialist Tax and Directors Liabilities Solicitors at Altion Law for a confidential discussion. We do offer an initial fixed price consultation in this area, as we know that many directors will want to take early stage legal advice as to directors personal liability for unpaid VAT and other HMRC taxes.
To speak to a tax solicitor or to have an initial confidential discussion with a member of our team, please make an Online Enquiry, and one of our specialist team will call you back at a time that is suitable for you. Alternatively, you can contact us directly on 01908 414990.
Directors’ Liability For Unpaid VAT
One of the main attractions of a limited company is that, as a business owner, your liability is limited. Typically, this means that you cannot be held personally responsible for any debts the company incurs.
However, there are exceptions to this rule – most notably in relation to tax. HMRC is mindful of any company which tries to avoid paying tax, whether through deliberate conduct or otherwise. If any VAT irregularities are discovered, HMRC will seek to recover any outstanding tax, along with interest and (in some cases) a financial penalty.
But what if the company cannot pay this VAT bill due to lack of funds? Or perhaps it has already gone into liquidation? When this happens, the company must go through the winding-up process, during which the liquidator will assess the director’s conduct. A director will be found ‘unfit’ if VAT was not paid due to:
- Dishonest behaviour, or
- A lack of care, skill and diligence
Where the failure to pay VAT is attributable to the director’s actions, he/she can be made personally liable (directors liabilities). A director can also be personally liable for unpaid PAYE and National Insurance contributions.
Get expert advice
Being found personally liable for unpaid VAT is something no director wants to face. It could result in a huge VAT bill, which may subsequently force you to take up bankruptcy proceedings. Because of the risks involved, we urge any director of a limited company to:
- Get expert accounting advice – do not assume that your accountant will tell you if you need to register for VAT. Ask your accountant if you are exempt, and if not, register for VAT and backdate it to the appropriate date.
- Stay on top of your VAT returns – VAT returns need to be submitted and paid quarterly. If you miss the deadline, you could incur a penalty.
- Carry out due diligence – the courts do not always accept a lack of experience as an excuse. Carry out your due diligence on suppliers and traders, staying aware of missing trader fraud.
- Get expert legal advice – if your company is struggling financially, do not bury your head in the sand. Get expert legal advice to determine the best way forward.
Our Tax Solicitors
As a director, you cannot always hide behind the ‘limited’ status of your company. You can be held personally responsible for the company’s unpaid taxes, including VAT. If this is a cause for concern, please contact us at Altion Law for a confidential discussion.
It might be that your company cannot pay its debts. If so, we can explain the options available to you, ensuring that your personal position is protected. Alternatively, the Insolvency Service may be pursuing legal action against you. In these cases, we can represent you throughout proceedings, working to show that you met your duties as a director.
To speak to a Tax solicitor or to have an initial confidential discussion with a member of our team, please make an Online Enquiry, and we will call you back at a time that is suitable for you. Alternatively, you can contact us directly on 01908 414990.