Director Disqualifications for Trading to the Detriment of HMRC

An increase in Director Disqualifications for Trading to the Detriment of HMRC. 

At NDP we act on many director disqualification defence cases and usually have a number of live cases open. A recurring theme in the cases that we see across our desks is the allegation that the company at issue has failed to pay HMRC or has traded to the detriment of HMRC, when it went into insolvent liquidation. This usually means that other creditors have been paid, as well as the directors of the company, but not HMRC. In other words, the monies due to HMRC – PAYE, NIC, VAT and Corporation Tax – are being used by the company to fund its on-going trading.

In these difficult economic times the Government is pushing hard to collect tax revenues and it appears to be the case that if companies do not pay their taxes then the directors are being placed at fault personally and (in this circumstance) being disqualified from acting as company directors as a result.

What is the director disqualification process for trading to the detriment of HMRC?

Generally the first thing we see, either direct from our clients or their professional adviser (typically an accountant) is what can be a fairly lengthy affirmation (i.e. a witness statement) from a civil servant at the Department of Business, Innovation and Skills (“BIS”) and / or a ‘section 16’ letter confirming that director disqualification proceedings will be brought.

These documents usually set out that the deficiency in the company when it went into insolvent liquidation was, for example, say £100,000 with, say £90,000 owed to HMRC in respect of PAYE, NIC, VAT and Corporation Tax. BIS will then include an analysis that purports to show that over the last, say, year or so of trading creditors and others were paid a lot of money by comparison to HMRC. BIS will then contend that this is conduct worthy of a director disqualification.

We are seeing more and more director disqualifications for trading to the detriment of HMRC

NDP are seeing more and more of these cases (which are not usually the subject of a press release by BIS). In our experience, it would appear that a harder line is being taken in director disqualification proceedings brought by BIS now. Whereas previously, a trading to the detriment of HMRC allegation may have warranted a three to four year disqualification period, it is now four or five years and there is more limited scope to negotiate down that period in the absence of any compelling explanation or mitigation.

It would appear to be the case that if the Government is unable to collect all of the taxes that it is due then it would also appear that the ‘punishment’ sought as a consequence is becoming harsher.

In some of these cases that are the subject of a press release by BIS then in NDP’s experience you are likely to see such words including: “The Insolvency Service will rigorously pursue traders who seek an unfair advantage over their competitors by not paying VAT or PAYE to the Government.” Whether you view those words as ‘spin’ or not it is certainly the case (as noted above) that non-payment of HMRC by subsequently insolvent companies carries increasing risk to the directors of those companies.

NDP can help you or your clients with Director Disqualification proceedings

In an increasingly tough economic and regulatory environment, obtaining the right advice, where there are director disqualification proceedings and other consequences of non-payment of taxes due to HMRC, is becoming increasingly important.

NDP team members have historically worked for BIS and acted for BIS, as well as assisted in authoring one of the leading legal text books on director disqualification, which means we are experienced in providing the right advice to you, or your client, on mitigation.

Contact us, or call us on 0121 200 7040 straight away for a free initial discussion. It is always the case that the sooner you get in touch, the more we can help. Please don’t let yourself become another statistic or press release from BIS without having spoken to one of the team at NDP first!

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