Can HMRC take money from a director’s wages?

If you’re a company director and you’ve received a letter from HMRC – or you’re worried about what might happen if the company falls behind on its tax payments – the first question on your mind is probably: can HMRC actually come after me personally? 

The short answer is yes, in certain circumstances. A limited company is a separate legal entity, so its tax debts are normally the company’s problem, not yours. But that protection has limits, and HMRC has several powers that allow it to pursue directors personally – particularly where PAYE or National Insurance hasn’t been paid and fraud or neglect is involved. 

This guide covers when exactly HMRC can take money from your income or bank account, when personal liability for company tax debts arises, and what you can do about it. 

Can HMRC take money from a director’s personal income?

Yes, HMRC does have the power to do that in certain circumstances. But the decision to do so is not taken lightly and depends on whether the debt is yours personally or the company’s.  

Your personal tax debts

A director’s salary works the same as any other employee’s pay for Income Tax purposes – the company takes off the Income Tax, Class 1 NICs and deductions before you receive it. 

If you’re also a shareholder in the company, you may receive dividends. Dividends are paid in your capacity as a shareholder, not as a director, and are reported separately through Self Assessment. If you owe HMRC money personally – for example, unpaid Income Tax from a Self Assessment return – HMRC has several routes to recover the debt: 

• PAYE tax code adjustment – HMRC can adjust the director’s PAYE tax code so that an overdue debt is collected gradually through their salary across the tax year. The base limit is £3,000, but for directors earning £30,000 or more this rises on a graduated scale up to a maximum of £17,000 (for earnings of £90,000 or more). The director receives less take-home pay but doesn’t have to make a separate payment. 

• Direct Recovery of Debts (DRD) – where a director owes more than £1,000 and can afford to pay but chooses not to, HMRC can recover funds directly from bank and building society accounts, including cash ISAs. Safeguards apply, including prior contact, a face-to-face visit, a 30-day window to object before any funds are taken, a right of appeal to the county court, and a requirement to leave at least £5,000 across the director’s accounts. DRD applies in England, Wales and Northern Ireland only. 

• Debt collection agencies and enforcement officers – for debts that remain unpaid, HMRC can escalate to third-party debt collectors and enforcement officers who can visit premises and take control of goods. 

These powers apply to personal debts. They don’t apply to company tax debts unless personal liability has been established through one of the mechanisms set out below. 

The company’s tax debts – when they can become yours

A limited company is a separate legal entity. Its tax debts belong to the company, not to the people running it. If you are a shareholder, your personal liability is normally limited to any amount unpaid on your shares – in most owner-managed companies, shares are fully paid at £1 each, so there’s nothing further to pay in that capacity. 

If the company owes HMRC money for unpaid VAT, PAYE, or Corporation Tax, HMRC’s first recourse is against the company itself.  

However, that protection isn’t absolute. HMRC has several statutory powers to transfer specific company tax debts onto individual directors where it can show misconduct, neglect, or a pattern of behaviour that justifies piercing the corporate veil. 

When HMRC can hold a director personally liable for company tax

HMRC has several specific statutory mechanisms for transferring company tax debts onto individual directors. Each applies to a different type of tax and has its own legal test. 

Personal Liability Notices – unpaid National Insurance

Under Section 121C of the Social Security Administration Act 1992, HMRC can issue a Personal Liability Notice (PLN) to transfer a company’s unpaid National Insurance contributions (NIC) liability directly onto an individual director. 

A PLN can be issued where HMRC believes the non-payment was due to the director’s fraud or neglect. In practice, HMRC’s own guidance says it generally reserves PLNs for cases involving fraud or neglect. 

Key points about PLNs: 

• A PLN can cover the whole of the company’s unpaid NICs attributable to the culpable officer – not just NICs on the director’s own salary. Where there is more than one culpable officer, HMRC may apportion the liability between them. Interest and penalties can also be included. 

• HMRC carries the burden of proof. It must show that the non-payment was attributable to the director’s fraud or neglect on the balance of probabilities. 

• PLNs can be issued against formally appointed directors, shadow directors, de facto directors, and company secretaries. 

• A PLN can be appealed to the First-tier Tribunal (Tax Chamber) within 30 days. 

PAYE – wilful failure and transfer-of-liability powers

If PAYE isn’t deducted from wages as required, or is deducted but not paid to HMRC, HMRC can in some cases transfer the unpaid tax liability from the company onto the director personally – or onto any employee who knew about the failure – meaning they become responsible for paying it out of their own money, not the company’s. 

There are two main routes HMRC can use, and both apply to situations where PAYE wasn’t handled correctly, not simply where the company ran out of money. Both are typically only used where the company itself can’t pay, for example because it’s insolvent or has ceased trading. 

Wilful failure to deduct PAYE

A director may be held personally liable where PAYE was not deducted or operated correctly, and HMRC can show the relevant statutory conditions are met.  

This is different from a case where PAYE was correctly deducted, but the company failed to pay it over to HMRC.  

The legal test under Regulation 72(5) Condition B has two parts: 

• The employer wilfully failed to deduct the right amount of PAYE; and 

• The employee received the payment knowing this 

In practice, HMRC typically pursues this where: 

• The director controlled the company’s finances 

• They chose to pay themselves without making the corresponding PAYE deductions 

• The failure was connected to payments to the director or connected parties, such as family members 

Regulation 72 and 81 directions

HMRC also has broader PAYE transfer-of-liability powers under Regulations 72 and 81 of the PAYE Regulations. In simple terms: 

• Regulation 72 Condition B applies where PAYE was under-deducted, the employer’s failure was wilful, and the employee who received the payment knowing this. HMRC notes this typically includes directors or anyone involved in running the company’s payroll, such as the pay clerk 

• Regulation 81 applies where HMRC has already issued a Regulation 80 determination (a formal assessment of unpaid PAYE against the company) and the amount not been paid within 30 days. Liability can then be transferred to a named director or employee under one of two conditions:  

• Condition A, which uses the same wilfulness-plus-knowledge test as Regulation 72; or  

• Condition B, which applies where the unpaid tax relates to a notional payment (for example, certain share-based remuneration where the employer was meant to account for tax but didn’t). 

In both cases, HMRC’s internal guidance confirms these directions are mainly used in director cases where the company is insolvent or has ceased trading. If the company is still operating, HMRC will normally pursue the PAYE liability from the company first. 

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VAT – personal liability for penalties for deliberate wrongdoing

Two regimes can transfer a VAT penalty onto a director personally. The first is defined by  paragraph 19 of Schedule 24 to the Finance Act 2007: where a company is liable to a penalty for a deliberate inaccuracy in its VAT return, and that inaccuracy is attributable to a director or officer, HMRC can recover up to 100% of the penalty from that individual by written notice. 

For the Schedule 24 route, the statutory test is narrow. HMRC must show: 

• The company is liable to a penalty for a deliberate inaccuracy in its VAT return; and 

• The inaccuracy is attributable to a director or officer 

Separately, where a director with a history of VAT non-compliance is involved in a new VAT-registered business, HMRC may require that business to provide a VAT security deposit under Schedule 11 of the VAT Act 1994 – an upfront sum held as a guarantee against future VAT, which can be substantial enough to make trading difficult.  

This is a separate power from the penalty regime above. It is triggered by HMRC’s assessment of the risk of future non-payment, not by a personal liability notice, though the underlying conduct is often the same. 

Corporation Tax – indirect personal exposure

If the company owes Corporation Tax and can’t pay, directors can be personally exposed in several ways: 

• Unlawful dividends – if directors paid themselves dividends while knowing the company didn’t have sufficient distributable reserves to cover both the dividends and outstanding Corporation Tax, a liquidator can pursue them for the unlawful distributions. 

• Insolvency claims – misfeasance, wrongful trading, and transactions at undervalue can all result in personal liability for directors where Corporation Tax debts contributed to the company’s insolvency. 

• Joint and Several Liability Notices (JSLNs) – in cases of repeated insolvency, avoidance, or evasion, HMRC can use JSLNs to cover all types of tax, including Corporation Tax. 

Joint and Several Liability Notices

Introduced by Schedule 13 of the Finance Act 2020, JSLNs are a relatively new HMRC power. They’re aimed specifically at directors involved in repeated insolvency, tax avoidance, or tax evasion. 

Unlike a PLN, which focuses on unpaid NICs, a JSLN can cover all types of tax. HMRC can pursue any single individual named on the notice for the full amount owed, without splitting the debt between directors. 

When can HMRC issue a Joint and Several Liability Notice?

For HMRC to issue a JSLN under the repeated insolvency rules, broadly, the following conditions must all be met: 

• In the last five years, the individual had a relevant connection to at least two companies that became insolvent with unpaid tax liabilities 

• A new company is or has been carrying on a similar trade to at least two of those old companies 

• The individual has a relevant connection to the new company 

• The relevant old companies’ total tax liabilities exceed £10,000 and represent more than 50% of their total unsecured creditor liabilities 

If those conditions are met, the individual can become jointly and severally liable for any unpaid tax that the new company owes as of the date of the notice, plus any tax it incurs over the following five years. HMRC must generally issue the notice within two years of becoming aware of facts sufficient to conclude the conditions are met. 

“Relevant connection” is broadly defined – it covers directors, shadow directors, participators, and anyone directly or indirectly involved in managing the company. A JSLN can be challenged by requesting an HMRC review or appealing to the First-tier Tribunal within 30 days. 

HMRC’s debt collection process – what typically happens

If the company (or you personally) falls behind on tax, HMRC follows a broadly predictable escalation process – though the exact route can vary depending on the debt type, your compliance history, and whether you engage. Understanding the typical path can help you act at the right time. 

Stage 1 – reminder letters and payment demands

HMRC starts with letters or phone calls when a payment is overdue. If the debt isn’t resolved, you’ll receive a final warning, sometimes called a Final Opportunity Letter. This is the last chance to pay or agree on a plan before HMRC escalates. 

Stage 2 – debt collection agencies

If the debt remains unpaid, HMRC may pass it to a regulated third-party debt collection agency.  

These agencies may contact you by phone, letter, and SMS. They cannot visit your premises or seize assets – their role is desk-based only. But receiving a letter from a debt collection agency is a clear signal that enforcement is coming if you don’t engage. 

At this stage, a Time to Pay application is more likely to be accepted than at later stages. 

Stage 3 – enforcement action

If the debt is still unresolved, HMRC may issue a Notice of Enforcement. After that, enforcement officers can visit business premises to list and take control of goods. 

Check the notice carefully for the deadline – statutory minimum notice periods can be shorter than you might expect. After that, enforcement officers (bailiffs) may visit business premises to list and seize goods under a Controlled Goods Agreement. If your business premises is also your home address, they have slightly weaker powers and cannot force entry, and they cannot only seize business assets, not your personal possessions. 

For company debts, HMRC can also issue a statutory demand and present a winding-up petition to force the company into compulsory liquidation. For personal debts over £5,000, HMRC can petition for the director’s bankruptcy. 

What can a director do if HMRC is pursuing them?

If HMRC is already in contact – or you think it’s coming – there are practical steps you can take. The key is to act before the situation escalates, because your options narrow significantly at each stage of the enforcement process. 

1. Engage with HMRC immediately

Never ignore HMRC correspondence. Escalation accelerates when contact is avoided, and HMRC is far more willing to negotiate with directors who come forward voluntarily. 

2. Apply for a Time to Pay arrangement

A Time to Pay (TTP) arrangement lets you spread arrears over an agreed period – often months rather than years – based on what HMRC considers affordable and credible.  

It must be a realistic proposal; HMRC will not agree to payments the company can’t sustain, and a failed TTP worsens the situation. But where the proposal is workable, a TTP can pause enforcement and give the business time to recover. 

3. Challenge a Personal Liability Notice 

PLNs can be appealed to the First-tier Tribunal. 

HMRC must prove fraud or neglect, and this standard is sometimes misapplied. Directors who took professional advice, kept records, and acted reasonably have strong grounds to challenge.  

It’s recommended to seek specialist legal or tax advice immediately on receipt of a PLN – the appeal deadline is 30 days. 

4. Seek professional advice early

An accountant or licensed insolvency practitioner can identify options before enforcement escalates.  

Depending on the situation, formal options may include a Company Voluntary Arrangement (CVA), administration, or a Creditors’ Voluntary Liquidation (CVL). 

How to reduce your risk of personal liability as a director

The triggers for personal liability are specific and well documented. Understanding what HMRC looks for – and building good habits around how you pay yourself, manage your tax obligations, and engage with HMRC – can reduce some of these risks.  

• Keep PAYE and NIC payments up to date – the company collects these from employees’ wages on behalf of HMRC. Falling behind on them while continuing to pay yourself is one of the key factors HMRC considers when deciding whether to issue a PLN. 

• Only take dividends from distributable profits – if the company doesn’t have sufficient profits to cover a dividend after accounting for all its liabilities including tax, don’t declare one. A liquidator can pursue directors personally for unlawful dividends. 

• Engage with HMRC early if the company is struggling – HMRC is far more willing to agree a Time to Pay arrangement with directors who come forward voluntarily than with those who wait for enforcement. 

• Keep records – document board decisions, financial forecasts, and the reasoning behind key choices. If your conduct is ever questioned, records made at the time are your strongest defence. 

• Get professional advice on your remuneration structure – how you balance salary and dividends affects both your tax position and potentially your personal exposure. Consider discussing renumeration with an accountant each tax year. 

• Don’t ignore HMRC correspondence – your options narrow at every stage of the enforcement process, and escalation accelerates when contact is avoided. 

Getting your director’s salary and tax obligations right

How you structure your director’s salary, dividends, and tax payments directly affects your personal exposure if things go wrong. Directors who pay themselves correctly, keep up with PAYE and NIC obligations, and engage with HMRC early are far less likely to face personal liability. 

If you’re setting up a limited company and want to get the fundamentals right from day one, Quality Company Formations can help you incorporate quickly and correctly. 

For ongoing support with professional address services, compliance and company secretarial filings, QCF’s Fully Inclusive Package has you covered.