Business owners facing temporary payment difficulties often face tough choices. Which bills do you pay first? Suppliers, staff, and fixed costs tend to feel more urgent than an outstanding tax debt.
Yet that choice can have serious consequences. Those who deliberately use the tax authority as a source of financing and consistently leave taxes unpaid are not only taking business risks. In some situations, a director can even be held personally liable for the company’s tax debts.
The inspiration for this topic comes from a recent article in Accountancy Vanmorgen, which warned against business owners using the tax authority as a bank. That practice can have far-reaching consequences.
Why the tax authority is not a bank
During the coronavirus period, business owners received widespread deferrals on tax payments. This led some entrepreneurs to believe that the Dutch Tax Authority takes a flexible approach to outstanding tax debts.
The current situation is different. The standard rules apply again. Business owners with payment difficulties can still request a payment arrangement or deferral, but that does require acting in time.
Those who do nothing and allow tax debts to accumulate increase the risks for the business and for themselves as a director.
When can you be held personally liable for a tax debt?
A private limited company (BV) is in principle an independent legal entity. This means that the company’s debts cannot normally be recovered from the director personally.
Yet there are exceptions.
The tax authority can hold directors personally liable under certain circumstances when tax debts remain unpaid. That risk increases when there is mismanagement or when a director fails to take adequate steps once financial problems arise.
Especially when it becomes clear that taxes cannot be paid, it is important to take immediate action. Waiting usually only makes the situation more complicated.
The risk of selective payment
A common situation is that business owners do pay other creditors, but not the tax authority.
On the face of it, this can sometimes seem logical in the short term. A supplier can stop delivering, while the consequences of an outstanding tax debt are often less immediately visible.
Yet there is a risk hidden in this approach.
When a company consistently prioritises other creditors while tax debts continue to accumulate, this can later be viewed as mismanagement. Especially if the company ultimately runs into serious financial difficulties or goes bankrupt.
Deliberately deprioritising the tax authority can therefore play an important role in any subsequent personal liability claim against directors.
What should you do when you have payment problems?
Financial difficulties do not automatically mean that a director will be held liable. Often it comes down to how those problems are handled.
If you find that taxes cannot be paid on time, it is wise to take immediate action.
Consider the following steps:
- Maintain a clear picture of your current financial situation.
- Do not let outstanding tax debts accumulate without a plan.
- Contact the tax authority in good time.
- Explore whether a payment arrangement is possible.
- Seek professional advice when the problems become structural.
The sooner action is taken, the more options are usually still available.
Waiting often makes the situation worse
Many payment problems do not arise overnight. Often there are earlier warning signs, such as mounting debts, liquidity issues, or difficulty meeting recurring obligations.
It is precisely in that phase that the mistake is often made of temporarily using the tax authority as a source of financing. That may seem like a simple solution, but in the longer term it can lead to additional pressure, higher debts, and potentially personal liability.
The key lesson from recent warnings by tax specialists and restructuring experts is therefore clear: do not use the tax authority as a bank. Business owners who acknowledge payment problems early and take action generally have more options to keep their situation under control than those who keep waiting.
Conclusion
An outstanding tax debt does not have to be a major problem in itself. The real risk arises when business owners deliberately leave taxes unpaid, give other creditors priority, and take no action to resolve the situation.
In such cases, the tax authority can under certain circumstances look beyond the BV and hold a director personally accountable.
It is therefore wise not to ignore payment problems. Acting in time usually offers more solutions than trying to limit the damage after the fact.
