INS44251 - What to investigate and how: Recovery of National Insurance Contributions from directors or other officers (Personal Liability Notices): What is a Personal Liability Notice?
Section 121C Social Security Administration Act 1992
The PAYE and National Insurance legislations require an employer to pay over to HMRC the PAYE and National Insurance Contributions (NIC) due on the earnings of an employee. A company has a statutory obligation to pay the PAYE and Class 1 (NIC) to HMRC within 14 days of the end of the month in which the deductions were made (or 17 days if by electronic method) in respect of employment income paid to its employees. If the correct amount of National Insurance Contributions (NIC) are not paid then Section 121C of the Social Security Administration Act 1992 provides HMRC with the powers to recover unpaid National Insurance Contributions, plus any interest and penalties, from the directors or other officers of the company.
The right to recover applies to all the contributions unpaid, by the company, which have arisen after 6 April 1999, and not just the contributions due in respect of the directors.
The legislation was introduced by Section 64 of the Social Security Act 1998 and came into effect from 6 April 1999. Its purpose is to provide a more timely and cost effective method to tackle abuse of the NIC system, and to act as a deterrent to future abuses and losses to the National Insurance Fund.
The legislation provides that HMRC may issue a Personal Liability Notice where:
- A body corporate has failed to pay the ‘contributions’ due at or within the prescribed time
- That failure is in the opinion of HMRC attributable to the fraud or neglect of one or more individuals who, at the time of the fraud or neglect, were ‘officers’ of the company. Such officers are known as ‘culpable officers’.
In respect of a company the legislation defines ‘officer’ as meaning:
- Any director, manager, secretary or other similar officer of the company, or any person purporting to act as such (including shadow directors).
For the purposes of the legislation, contributions include primary and secondary Class 1 NIC, Class 1A NIC, Class 1B NIC and related interest or penalties charged in respect of these contributions.
If the decision is made to issue a Personal Liability Notice, the individual ‘culpable officer’ issued with the notice becomes personally liable for the amount specified in the notice. The individual has the right to appeal against the issue of Personal Liability Notice.
Personal Liability Notice is commonly abbreviated to ‘PLN’.
Further information regarding Personal Liability Notices can be found in the National Insurance Manual (NIM12200 - NIM12213).