HMRC hitting a director with a £100k personal liability is ominous

It’s tax advisers who are already raising an eyebrow at Wednesday’s Spring Statement 2025 boosting HMRC’s compliance capability, due in one instance to a notable “lack of proposed guardrails.”

Guardrails, eyebrows, and solidarity...

Yet it is contractors -- for whom the limited company structure is meant to provide a guardrail away from personal liability -- who will raise an eyebrow at a new FTT ruling in HMRC’s favour, writes Naseerah Mussa of law firm Chartergates.  

If you’re a limited company director with an adviser, then you’ve perhaps got cause to raise both eyebrows. The FTT’s ruling saddles a director with a personal liability of over £100k, stemming from the NIC debts of his limited company. And while he wasn’t represented, the judgment backing HMRC is a timely show of solidarity from the courts with the government about the beefing up of the taxman -- much of which is designed to take on advisers -- that the chancellor very publicly just signed off.

John Strange versus HMRC; a seminal case?

Handed down on March 6th 2025, the judgment by the First-Tier Tribunal (FTT) in this potentially seminal case concerns an appeal against a Personal Liability Notice issued by HMRC.

The PLN was issued by the Revenue under Section 121C of the Social Security Act 1992, to a Mr John Strange.

Mr Strange wasn’t represented, and he didn’t attend the hearing.

Failure by a limited company to pay NI contributions

The PLN was issued due to the failure of S&M Property Maintenance Scotland Ltd, for which Mr Strange was the sole director, to pay National Insurance Contributions (NICs). 

A further hallmark of Mr Strange’s situation that contractors will be familiar with is that his company entered a Creditors Voluntary Liquidation on June 5th 2018.

Four key appeal issues in Strange v HMRC

The key issues in the appeal were:

  • whether there had been an underpayment of NICs by the company;
  • whether the company’s failure to pay NIC was attributable to neglect on the part of Mr Strange;
  • whether Mr Strange was acting as an ‘officer’ of the company at the time of the failure to pay the NIC due; and
  • whether it was reasonable for HMRC to treat Mr Strange as the sole culpable officer.

The tribunal found that the burden of proof rested with HMRC to prove any matter raised by a ground of appeal. Here, the standard of proof was the civil standard of the balance of probabilities, i.e., taking into account all probabilities to reach a decision as to where the truth lies.

Strange v HMRC: five key findings

The tribunal found the following five facts:

1. The Company had unpaid NIC debts for the period August 6th 2016 to June 5th 2018, totalling £103,420.89 including interest. 

During the period August 2016 to June 2018, the company bank account was in receipt of £782, 981.14. However, none of these funds were applied toward the company’s PAYE/NIC liabilities. The company subsequently went into creditors voluntary liquidation shortly after, on June 5th 2018.

2. Mr Strange was the sole director of the Company during the relevant period. He was a director of four other companies, of which two had PAYE schemes which were fully compliant. This provided evidence that Mr Strange knew how PAYE and NIC schemes operated and what was required for HMRC compliance.

3. Mr Strange was responsible for all financial aspects of the company. He was the only signatory on the company bank account; he made payments from the account, and had access to the account’s online bank statements.

4. Despite being aware of the statutory obligation to pay PAYE/NIC, payments were not made, and a ‘Time to Pay’ arrangement with HMRC was not complied with due to a lack of funds.

5. Mr Strange stated that it was not worthwhile for HMRC to progress further with his case as he had no assets. He further stated that his house and his car were owned by his wife.

HMRC argued that the conditions for issuing a PLN under S121C of the act were satisfied.

The Revenue said there was an underpayment of NIC; the failure to pay was attributable to neglect on the part of Mr Strange, and Mr Strange was an officer of the company at the time that the company failed to pay the liability.

What Strange argued

The tribunal considered Mr Strange’s grounds of appeal, which included that the HMRC officer had misunderstood the reasons for the company being in trouble, and that he should not be held personally liable for the company debt.

Mr Strange, who claimed he was “under threat for my life” due to the pressure to make his business work, financially, said: “I strongly feel to suggest there was neglect on my part is unfair.”

The tribunal’s decision was based on the evidence provided, including Mr Strange’s own statements and the company’s financial records. 

Three damning findings against John Strange

The tribunal concluded that:

  • there had been an underpayment of NIC;
  • that Mr Strange was acting as an officer of the company; and
  • that the company’s failure to pay NIC was attributable to neglect on the part of Mr Strange.

Numbers don’t lie

The tribunal upheld HMRC’s decision to issue the PLN, confirming that Mr Strange was liable for the company’s NIC debt -- of £103,420.89.

At the hearing, it was found that Mr Strange had paid himself £192,526.49.

He claimed the monies were “used to repay others,” but no evidence was provided (to HMRC or the FTT).

On the day that his company went into liquidation (June 5th 2018), Mr Strange was noted to have made a payment to himself of £16,000.

A super start for Spring Statement’s fillip of HMRC

While these figures and others in the case may indicate it was a ‘cut and dry’ decision, the case is notable for coming in the same month as Spring Statement 2025.

And it may be just a coincidence, but this ruling against the taxpayer aligns with the government's push announced on March 26th to enhance HMRC’s enforcement capabilities, as part of official efforts to close the ‘tax gap.’ 

While the latter term has its critics, what’s indisputable is that the chancellor’s increased investment in HMRC, including its staff and digitalisation, will result in greater scrutiny of businesses.

Expect a taxman of greater strength and quicker reactions

We’d go further – a stronger and perhaps even quicker drive from HMRC to ensure compliance should now be expected by enterprises.

And it’s a tax compliance drive that may lead to more John Stranges – that’s more limited company directors facing personal liabilities.

Leveraging paperwork so you can prove ‘prudent and reasonable’

With similar cases looking more likely, our top tip to directors is to ensure that sufficient records and details are retained. The key if an inspector calls will be for the taxpayer to demonstrate their approach to compliance, so it can be evidenced that all reasonable efforts to comply with the law were made. (N.B. In the Strange case, the case of Michael Eames v HMRC was cited, where it was held that a “prudent and reasonable person,” knowing that amounts deducted from payroll were owed to HMRC, would not use those funds to pay themselves in priority to HMRC).

Being able to demonstrate compliance using records and details should enable taxpayers to mount an appeal.

It could even prove instrumental in avoiding being inadvertently swept up into the more aggressive approach from HMRC which both advisers and contractors are now understandably on guard against in wake of Spring Statement’s considerable fillip for the Revenue. 

Finally, beware a hiding to nothing if you’ve 'NIC-glected' duties as John Strange did…

That said, in cases such as Mr Strange’s, where HMRC is able to demonstrate the office-holder was negligent and /or director duties were neglected, any appeal will always be on a hiding to nothing.

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Written by Chartergates

Chartergates is the country’s leading tax, VAT and employment law expert.  Chartergates specialises in technical, advisory and contentious work, including, employment status, IR35, umbrella company compliance, HMRC enquiries, HMRC penalties, CITB levy, the cancellation of gross payment status and all areas of employment law.

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