Directors not liable under PLNs as HMRC failed to establish deliberate conduct by company

05 January 2024. Published by Keziah Mastin, Associate

In Sharon Suttle and another v HMRC [2023] UKFTT 873 (TC), the First-tier Tribunal (FTT) allowed the taxpayers' appeals against personal liability notices (PLN) on the basis that the company, of which they were directors, did not make deliberate inaccuracies in various returns submitted by it to HMRC.


Sharon Suttle and John Jaekel (the Appellants) were the directors of Earn Extra 139 Ltd (EE139), an umbrella company which provided its own employees to other employment businesses or end clients.

Following an investigation, HMRC concluded that EE139 had deliberately submitted P35 returns, P14 returns and Real Time Information returns (the Returns) which it knew to be inaccurate and concealed those inaccuracies.

HMRC issued to EE139:

1.  determinations under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 and a section 8 decision, pursuant to the Social Security Contributions (Transfer of Functions) Act 1999, for underpaid PAYE income tax and Class 1 National Insurance Contributions totalling £12,524,514, for the years 2010/11 to 2015/16; and

2.  a penalty in the sum of £10,645,836.90.

EE139 went into liquidation and HMRC issued PLNs to the Appellants under paragraph 19(1), Schedule 24, Finance Act 2007, on the basis that 50% of the penalty which had been issued to EE139 was attributable to each of them.

The Appellants appealed against the PLNs to the FTT.

FTT decision

The appeals were allowed.

The Appellants relied on the following grounds of appeal (amongst others):

the underpayment of tax was not the result of a deliberate inaccuracy by EE139;
any deliberate inaccuracy could not be attributed to the Appellants;
the calculation of the penalty was flawed;
HMRC's decision-making process was flawed as it failed to allow enough time to respond to the allegations it made; and
HMRC failed to give EE139 adequate credit for its cooperation during HMRC's investigation.

The FTT dismissed HMRC's argument that it was an abuse of process for the Appellants to litigate EE139's liability when its administrators had appealed but later withdrew the appeal against the penalty. In the view of the FTT, all the facts and issues relevant to the validity and amount of the PLNs should be determined by it.

The FTT considered extensive evidence and in allowing the appeals concluded that:

there were inaccuracies in the Returns which led to an understatement of tax;
HMRC did not establish that the inaccuracies led to an understatement of the amount of tax which was assessed, and on which the amount of the penalty issued to EE139, and thus the PLNs issued to the Appellants, was based;
EE139's behaviour was not deliberate (or deliberate and concealed); 
the condition in paragraph 19, Schedule 24, Finance Act 2007, that a penalty could be issued to a company for a deliberate inaccuracy, was not satisfied; and
given that the inaccuracies were not deliberate, the question of attribution to the Appellants did not arise.

The FTT also refused to allow HMRC to change its previously accepted position that the burden of proof was on it in relation to the substantive issues which fell to be determined in the appeals.   


This decision confirms that HMRC bears the burden of proving deliberate inaccuracies on the part of the company when issuing PLNs to its directors. In the present case, although EE139 was found to have inadequate processes in place, the evidence relied upon by HMRC was not sufficient to establish that its behaviour was deliberate or that the inaccuracies led to an understatement of the amount of tax which was assessed. The decision will be of particular interest to those advising umbrella companies.

The decision can be viewed here.

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