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Tax - Directors How Culpable Are You?

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Directors or officers could be liable for inaccurate tax declarations made by a limited company - so a company matter could become personal with degrees of culpability determining the level of penalty.

Under the Schedule 24 of Finance Act 2007, the HMRC can impose a penalty on a company director or officer personally in respect of inaccurate tax declarations made by the company, where dishonesty on the part of the individual can be identified.

The penalty can be substantial - up to the maximum level of 100% of the potential lost revenue in certain circumstances.The level of culpability is outlined in Schedule 24, part 1, with three levels of culpability that ultimately determine the personal liability of a director or officer.
 

  1. Careless - Where the inaccuracy is due to a failure to take due care. In such circumstances the HMRC can demand 30% of the potential lost revenue.
  2. Deliberate but not concealed - This is when a director or officer deliberately discloses an inaccuracy to the HMRC but makes no attempt to conceal it. This can result in the HMRC demanding 70% of the potential lost revenue.
  3. Deliberate and concealed - This is when a director or officer deliberately discloses an inaccuracy to the HMRC and then conceals it by some means - for example by also submitting false supporting evidence. This degree of culpability can result in the HMRC demanding 100% of the potential lost revenue from the director or officer.

Richard Fergusson, a partner with Yorkshire Law firm Keeble Hawson and member of their Insolvency and Turnaround Department concludes:

"The potential for the HMRC to hold directors personally liable will inevitably require caution when making tax declarations, particularly when an inaccuracy can be categorised as careless and result in a substantial contribution from the director personally - despite there being no adverse intention."

Richard Fergusson can be contacted on 0113 399 3485 or on richardfergusson@keeblehawson.co.uk

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