DMBM530170 - Debt and return pursuit: VAT: liability for payment: company managing officers

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Normally, directors and managing officers of limited companies are not personally liable for company debts.

However a civil penalty for fraudulent evasion of VAT may be transferred, in whole or in part, from a company to a director or managing officer of a company where there is evidence to show that the conduct giving rise to the penalty is attributable to the dishonesty of the director or managing officer. Section 61(3) of the VAT Act 1994, provides:

“Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under Section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under Section 76.”

Section 61 (6) of the Act defines managing officer as any manager, secretary or other similar officer of the company or any person claiming to be a manager, secretary, etc or a director. 

In such circumstances, unless the debtor is registered for VAT as a sole proprietor we will allocate a non-VAT registration number to the company director or managing officer. The Non-VAT registration numbers will be dealt with by the Non-VAT Team in Liverpool.

If we impose a penalty we must enforce it even if there is little prospect of payment. If we do not enforce these penalties dishonest company directors and officers may liquidate a company on which a penalty is imposed and simply move on to form new companies.

Personal liability of un-discharged bankrupts acting as company directors/company officers, etc

It is an offence for a person who is an un-discharged bankrupt to act as director of a company, or to directly or indirectly take part in the promotion, formation or management of a company, except with leave of the court.

A person guilty of an offence is personally liable for all the debts of the company incurred at a time when that person was involved in the management of the company (s.15 of the Company Directors Disqualification Act 1986).

A person who is involved in the management of a company and who acts or is willing to act on the instructions of an un-discharged bankrupt is personally responsible for debts of the company. This person is liable for debts incurred by the company:

• at any time when he was acting or willing to act on instructions from the un-discharged bankrupt; and,
• thereafter, in the absence of proof to the contrary.

Where a person is personally responsible for the debts of a company he is jointly and severally liable with the company and any other person who is so liable.