When Tax Becomes Personal by Rachel McCahill

When Tax Becomes Personal: Director Liable for £103k in NIC Failure to Pay

The First Tier Tax Tribunal held a director personally liable for his company failing to pay £103k in National Insurance Contributions despite £783k going through the company’s bank account.

Background
In the case of John Strange v HMRC [2025] TC09448, HMRC issued a personal liability notice against Mr Strange the sole director of S & M Property Maintenance Scotland Limited (“the Company”) (“the Notice”). The Company had got into financial difficulties, but despite Mr Strange borrowing money from friends and family to pay wages and trying to win more work, the Company couldn’t avoid insolvent liquidation.

It was noted that Mr Strange:

• Dealt with the Company’s financial affairs
• Provided accountants with information for pay slips
• Was notified of the amounts needed to pay HMRC
• Was aware of the statutory duty to make the payments to HMRC
• Was the only signatory on the bank account
• Decided which creditors to pay, following a review carried out by himself and another member of staff
• Failed to pay NIC, PAYE and VAT for a 22 month period, despite having made the deductions.

Personal Liability Notice
HMRC issued a personal liability notice in respect of his failure to ensure that the Company paid the National Insurance Contribution. Mr Strange appealed.

The Defence
Mr Strange claimed he was threatened by employees in respect of their wage payments and that he borrowed money from friends and family in order to pay the wages.

The First Tier Tax Tribunal (FTTT) Decision
Mr Strange did not attend and it was held that he was properly informed of the hearing. The FTTT upheld the personal liability notice on the grounds that Mr Strange was responsible for the NIC debts due to his persistent failure to pay those debts over a long period of time. The liability pursuant to the PLN was £103,420.89 for the following reasons:

• There was an underpayment of National Insurance.
• No payments were made between August 2016 and May 2018 despite the sum of £783,000 being paid into the Company bank account.
• Mr Strange was also a director of four other companies, two of which had PAYE schemes which were fully compliant which was evidence that Mr Strange knew how PAYE and NIC schemes worked and what was needed in order to comply with HMRC’s requirements.
• Mr Strange had paid the sum of £192,526.49 to himself. Mr Strange argued that these monies had been used to repay others, but he did not provide any evidence to substantiate this either to HMRC or to the FTTT.
• Mr Strange was an officer and as such he had an obligation to ensure that the Company settled its debts as they fell due, as well as ensuring the Company’s affairs were conducted in a proper and business-like manner.
• The obligation to pay NIC is not contingent upon the cash availability of the business.
• Mr Strange deliberately decided to withhold payment of PAYE and NIC to assist in part funding the Company and pay other creditors with money that ought to have been remitted to HMRC.
• The Company’s failure to pay NI was attributable to neglect on the part of Mr Strange. His actions were not that of a prudent and reasonable person.
• Mr Strange’s actions constituted negligence as defined in ordinary terms.

So, what does this mean in practice for Insolvency Practitioners?
Whilst this case is a decision of the FTTT, it does raise issues which should be considered in relation to director conduct when carrying out investigations, including:

• The level of any monies owed to HMRC
• Over what period of time such indebtedness occurred
• What monies flowed through the bank account during this time
• Whether there were any attempts to pay HMRC
• Whether there was any personal benefit to the directors during this time
• Are there any board minutes or other evidence showing what consideration was made (if any) to HMRC indebtedness.

Rachel McCahill
Associate Director

The legal position outlined in this article is correct as of the date of original publication in IPA’s Newsletter in July 2025. Readers should verify whether any subsequent legal developments have affected the position stated here.