In Charles O’Rorke v HMRC [2017] TC6008, the First Tier Tribunal (FTT) upheld an assessment that a director was negligent so personally liable for the company’s NIC bill.
- Charles O’Rorke FCCA was Finance Director of L Wear Limited, a company purchased out of administration in April 2006.
- It traded until March 2007 before being put into liquidation. During this period O’Rorke prioritised payments to staff and suppliers over HMRC.
- HMRC originally alleged fraud. They downgraded this to negligence and raised a Personal Liability Notice on O’Rorke, making him personally liable for the company’s unpaid NIC.
The former director appealed.
Defences advanced were that:
- O'Rorke was mentally ill at the time he worked for L Wear so could not have been negligent
- The key question is whether negligence is a subjective or objective test
- The FTT considered the question twice before the hearing, getting different results
- The Upper Tribunal ruled the test was objective, so O’Rorke’s state of mind was not relevant
- The length of time between the events and the tribunal was in breach of his human rights
- The FTT considered that there had been no unreasonable delay as the case was procedurally active throughout
- It did not rule on whether the Human Rights Act was actually in point
- O’Rorke acted in the best interests of the company and shareholders by paying employees and suppliers in preference to HMRC
- The FTT held that this was not a viewpoint that could be held by a reasonable person
- “… such a position verges on delusional”
Comment
The decision that negligence is an objective test is interesting: this means that the circumstances and potential mitigations surrounding the suspected negligence are not relevant.
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