Most IT contractors believe that having a limited liability company provides adequate protection, unless they have given personal guarantee for their company’s liabilities, such as a lease or bank loan. However, this may not be true.
Opus Business Services Head of Forensics & Dispute Resolution Liz Coleman said that in recent times, HMRC has been recovering unpaid NIC and PAYE payments that are due on company directors’ salaries and other payments. The taxman is also recovering these payments made to business associates. IT contractors should note that HMRC is recovering these dues from the directors of the company.
When it comes to IT contractors, HMRC has the legal right to recover PAYE payments if a director receives compensation knowing that the company intentionally did not make tax deductions on their payments and salary. Of course, since IT contractors have complete control of their limited liability company, it can be very difficult for them to prove that the company did not deliberately fail to make the deductions.
Under such circumstances, the unpaid PAYE payments will not be a liability for the company. Instead, the IT contractor will be personally liable for the debts. HMRC can recover PAYE from previous years besides charging penalties and interest on late payments.
HMRC also has the rights to recover unpaid NIC from the company’s directors. Directors can be liable to pay all pending NIC payments of the company and not just the payments due on what was paid to the directors. If directors do not pay NIC due to fraud or neglect, then HMRC has the right to issue a personal liability notice, which can prove to be extremely expensive for IT contractors. That is why IT contractors need specialist finance advice to ensure that they make the necessary payments to HMRC on time.