Companies that suppress their takings, thereby evading tax, may live on the fat of the land for a while. However, as a tax tribunal ruling showed, the corporate veil often affords limited financial protection to their directors when HM Revenue and Customs (HMRC) comes calling to rain on their parade.

The case concerned the sole director and shareholder of a company that provided a takeaway pizza business. Following an investigation, HMRC took the view that the company’s turnover had been systematically supressed. Using its best judgment, HMRC assessed the company for £74,170 in VAT.

A penalty of £9,128 was imposed on the company in respect of two VAT periods on the basis that its behaviour had been deliberate. A personal liability notice (PLN) was raised against the director in the same amount after HMRC concluded that the company’s inaccuracies were attributable to him.

The company, which had meanwhile entered liquidation and was eventually struck off, suffered a further blow when HMRC also issued it with a penalty in respect of unpaid Corporation Tax. As a result, the director was soon afterwards hit with a further PLN in the sum of £71,537.

After the director appealed, the First-tier Tribunal upheld the VAT PLN in full. In reducing the Corporation Tax PLN to £31,399, however, it found that HMRC had failed to prove that the company had acted deliberately in respect of part of its liability. The director’s overall bill was cut from £80,666 to £40,527.