When a company fails to pay over the PAYE and NIC which should have been deducted from salaries paid to the employees and directors, HMRC can issue the directors and shadow directors of the company with personal demands for the tax due.
A shadow director is not registered as a director of the company with Companies House, but he or she will effectively control the company by giving instructions to the named directors, and to other staff who are accustomed to act on those instructions. Majority shareholders may be deemed to be shadow directors if they effectively run the company.
Liquidators can take action against shadow directors just as they can against the named directors for debts owing, including tax.
There have been a number of cases recently where HMRC has gone after the shadow director of the company to collect the unpaid PAYE. In those cases the individuals may have assumed they could avoid any responsibility for the company's debts by not appointing themselves as a director of their company. However, HMRC questioned the staff involved to find out who issued the instructions to pay salary and not pay over the PAYE due, concluding that certain persons were shadow directors.