Can HMRC make a director personally liable for company tax?

A limited company is a distinct legal person, separate from its directors and shareholders. Corporation tax is a liability of the company, not of you personally, and in the ordinary course of business, if the company can't pay a tax bill, that's a company debt, not a personal one.

This protection is why most small business owners choose to trade through a limited company rather than as a sole trader. It holds even during an HMRC enquiry: the company answers for its return, and any additional tax, interest, or standard penalty is a liability of the company.

The main route HMRC uses to reach a director personally is a personal liability notice, available under paragraph 19 Schedule 24 Finance Act 2007 for inaccuracy penalties, and under equivalent provisions in Schedule 41 Finance Act 2008 for failure-to-notify penalties. This lets HMRC transfer some or all of a penalty from the company to an individual officer where HMRC considers the inaccuracy or failure was attributable to that person's deliberate act.

This is a high bar. HMRC has to show the individual director's conduct, not just their office, caused the deliberate error, and it applies to the penalty rather than automatically to the underlying tax. HMRC generally reserves this power for cases involving deliberate understatement rather than genuine mistakes.

Separately, if a company becomes insolvent, insolvency law can expose directors personally where there's evidence of fraudulent trading, wrongful trading, or transactions designed to put assets beyond creditors' reach, including HMRC. A liquidator, rather than HMRC directly, usually pursues these claims, but HMRC as a creditor can support or prompt them.

HMRC can also require security from a company, and in some cases from its directors, where there's a history of tax being paid late or not at all, under powers in Finance Act 2011 and related regulations covering PAYE, VAT, and other taxes.

If HMRC indicates it's considering a personal liability notice, take that seriously and get advice immediately, since it changes the enquiry from a company matter into one with direct personal financial consequences for you.

Focus on the specific test HMRC has to meet: was the inaccuracy genuinely deliberate, and was it genuinely attributable to your own conduct as opposed to an error, a misunderstanding, or an adviser's mistake. These distinctions matter enormously to the outcome.

If a personal liability notice is issued, you become personally responsible for paying the relevant penalty, which sits alongside, not instead of, the company's underlying tax liability.

In insolvency situations, personal exposure can extend well beyond a penalty to the underlying tax debt itself, plus legal costs, if wrongful or fraudulent trading is established.

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