All companies that have employees must withhold income tax when they pay their employees, this is known as PAYG. That withheld tax becomes an automatic debt that is owed to the ATO by the company and if the company fails to pass it on before the due date the directors of the company become personally liable for the entire debt.
The debt can only be collected by the ATO after a Director Penalty Notice has been issued. The directors then have 14 days to comply with the notice or they will face personal liability for the amount. The time limit here is of great importance as the ATO has no discretion to extend the period and the 14 days begin when the notice is sent and not when it is received.
If you have received a Directors Penalty Notice, you should:
- Pay the amount in full and if possible without delay
- Enter into a payment arrangement with the ATO
- Such an arrangement may mean repayment by instalments or otherwise, however it is important to keep in mind that the 14 days are still running while negotiations are occurring so it would be highly valuable to seek our professional advice.
- Appoint a voluntary administrator
- The directors can, by majority, appoint a voluntary administrator to the company; however it is important to do this quickly and properly.
- Appoint a liquidator.
Important things to consider include:
- Loan repayments may not avoid personal liability
- If the right address is not recorded with ASIC personal liability can occur without the director(s) actually receiving a Directors Penalty Notice
- The 14 day time limit strictly applies and the ATO has no discretion to extend it.
It is important to seek urgent advice on each of these options in order to ensure the directors personal liability is avoided if it is possible to do so.