THE SUNDAY TIMES - BUSINESS DOCTOR
19 January 2010

VT writes: I am a minority shareholder but not a director in the company where I work. Another employee and I hope to acquire our boss's shares and take on the business. However, I fear that our employees' PAYE may not have been recorded properly. If errors come to light and the current directors have already retired, who would be liable?

The obligation to correctly operate PAYE on an employee's salary lies with the employer company writes Anne Hogan, Tax Manager, Horwath Bastow Charleton Limerick. If PAYE has been incorrectly operated in relation to your salaries the company has an obligation to correct the position and account for any unpaid tax, interest on late payment and possibly penalties to the Revenue Commissioners. Therefore, in advance of your acquisition of the shares I would advise that you require the PAYE position to be reviewed and corrected if necessary; such a review could be carried out by a tax advisor who you would engage to review the tax position of the company. Such a review should also cover all other tax heads of charge. It would be recommended that you would seek legal advice in relation to the acquisition of the shares. Generally the legal documents relating to the sale would include a tax deed / indemnity that would provide an entitlement for you to make a claim against the person who has sold you the shares for any tax liabilities that may arise after the date you acquire the shares but which relate to the period before you acquired the shares. If the seller makes a disclosure to you in relation to a PAYE underpayment in advance of the share transfer it should be dealt with appropriately. The existence of an undeclared tax liability could impact on the value of the company, this is especially so if the position has not been corrected before the shares are sold and the actual tax exposure is substantially larger than what had been disclosed. It would be advisable that all or part of the consideration would be withheld until such time as a settlement has been agreed with the Revenue Commissioners.