Directors and Tax Representatives: When Can Company Tax Become Personal Liability?

A company’s unpaid tax does not automatically become the personal debt of every director. Kenyan company law generally treats the company as a separate legal person, while the Tax Procedures Act creates defined circumstances in which a tax representative, appointed person, director or controlling member may assume personal exposure. The question is therefore statutory and factual: what role did the person hold, what assets or powers did they control, what arrangement or conduct is alleged, and which provision does KRA rely on? A demand addressed to an individual should be analysed on that basis, not accepted merely because the company has a tax arrears balance.

Start with separate corporate personality and the statutory exception

A company is ordinarily liable for its own tax. Directorship, shareholding or a senior title is not, by itself, a universal guarantee of company liabilities. The relevant exception must be found in legislation and applied to the facts. The Tax Procedures Act, 2015 addresses tax representatives, appointed persons and liability for tax payable by a company in sections 15 to 18.

This distinction matters in practice. A notice may be issued to a company and copied to a director; that does not necessarily make the director personally liable. Conversely, a person who does not hold the formal title of director may still be exposed if they fall within a statutory category, such as a controlling member, tax representative, receiver, liquidator or other appointed person. The proper analysis begins with the legal capacity in which KRA says the person is liable.

Ask for the decision, statutory provision, tax head, period, amount, calculation and facts relied on. Then compare them with contemporaneous company records: the register of directors and members, board minutes, management roles, bank mandates, shareholding records, appointment instruments, insolvency documents, financial statements and communications with KRA. Personal liability cannot responsibly be assessed from a title on a letterhead alone.

Tax representatives perform the taxpayer’s tax duties

Section 15 identifies persons who are tax representatives for different taxpayers. For a company, this can include an officer such as a chief executive officer, managing director, company secretary, trustee, resident director or a person performing a similar function. The Act also identifies representatives for partnerships, trusts, non-residents, deceased persons, bankrupt persons and insolvent companies. The representative’s role is to perform tax obligations imposed on the taxpayer, including return and payment responsibilities in the circumstances the Act describes.

Representation is not the same as blanket personal assumption of the taxpayer’s debt. The Act qualifies a representative’s liability and recognises important questions about knowledge, assets in the representative’s possession and debts with priority. A representative who pays tax on behalf of a taxpayer may have a right to indemnity from that taxpayer. Conversely, exposure can arise where a representative deals with or alienates taxpayer funds in circumstances that leave tax unpaid. The statutory text and the evidence of control over assets are essential.

For that reason, company officers should keep the roles distinct. Board minutes should identify who is authorised to deal with KRA; finance teams should retain approval trails for returns and payments; and any change in office, directorship, authority or non-resident representation should be documented and notified through the applicable process. These records are not formalities. They can show whether a person actually had the authority, knowledge and control that a personal-liability allegation assumes.

External advisers also need care. A tax agent may represent a taxpayer before KRA, but professional involvement does not automatically make the agent personally responsible for the taxpayer’s tax. The scope of appointment, the funds handled and the particular statutory provision remain decisive. A person served with a notice in a representative capacity should promptly state whether they still act, what assets they hold and the records that prove that position.

Appointed persons have special duties over assets

Section 17 addresses an appointed person managing a taxpayer’s affairs, such as an administrator, executor, trustee in bankruptcy, receiver or liquidator. This role often arises at precisely the point when available assets are limited and competing creditor claims are urgent. The Act creates notification and asset-preservation duties, and an appointed person may be required to set aside the amount notified as tax payable before distributing assets, subject to the statutory framework and debts that have priority.

The key practical question is not simply whether the company has unpaid tax. It is whether the appointed person had the relevant appointment, received the statutory notice or information, controlled assets and dealt with them in a manner that triggered personal responsibility. Receivership or liquidation also introduces company, insolvency, security and priority issues that cannot be resolved by a tax provision in isolation. The appointment instrument, court orders, creditor security and payment chronology should all be preserved.

An appointed person should notify KRA promptly upon appointment and seek written confirmation of the known tax position. Before distributing or selling material assets, the person should maintain a schedule of tax claims, secured claims, operational expenses and other asserted priorities. If there is uncertainty, obtain specialist advice rather than treating a broad tax demand as automatically ranking ahead of every other obligation or, conversely, treating it as irrelevant. Personal exposure may arise from the handling of available assets, not merely from accepting the appointment.

Directors and controlling members face a narrower company-liability rule

Section 18 deals specifically with a company arrangement made with the intention of rendering the company unable to pay tax that has become payable. In that situation, persons who were directors or controlling members when the arrangement was made may become jointly and severally liable for the company’s tax liability, subject to the statutory conditions and defences. The provision is directed at conduct that strips or diverts the company’s ability to meet a tax debt; it is not a general rule that an insolvent company’s tax automatically transfers to its management.

The factual questions are therefore critical. What was the alleged arrangement? When did it occur? What tax was already payable or anticipated? Who authorised, implemented or benefited from it? Did it transfer assets, payments, business opportunities or control away from the company? Did it actually render the company unable to satisfy the tax? General references to poor trading conditions, late payment by customers or business failure may not answer an allegation of a deliberate asset-protection arrangement, but KRA must still identify the statutory route and facts on which it relies.

The Act provides safeguards for certain officers and controlling members. The availability of a defence can turn on matters such as whether the person derived a financial or other benefit from the arrangement, opposed it after becoming aware of it and notified both the company and Commissioner, or was not involved in executive management and did not know, and could not reasonably have been expected to know, of the arrangement. These are fact-sensitive questions. They should be supported by board minutes, emails, internal reports, bank authorities, professional advice and evidence of any notice of dissent.

A non-executive title is therefore not conclusive, nor is a formal resignation if the person continued to exercise real control. Equally, a person should not be presumed involved merely because they were a director at the time. The statutory test and actual conduct must be matched carefully. A response should set out the person’s role, knowledge, actions, benefits received, authority over the transaction and the documentary record, rather than simply denying liability in general terms.

Respond to a personal-liability demand with a role-by-role record

When KRA seeks to recover company tax from an individual, keep the company’s merits dispute and the individual’s liability question distinct. The company may need to object to an assessment or pursue an appeal. The individual may also need to contest whether the statute reaches them at all. Missing the company’s objection deadline can complicate the personal case, but it does not remove the need for KRA to establish the statutory basis for personal recovery.

Prepare a chronology that includes tax periods, dates liabilities became payable, directorship and appointment dates, major transactions, bank movements, insolvency events and all KRA notices. For each alleged transaction, identify the decision-maker, recipient, value, commercial reason, supporting approvals and effect on the company’s ability to pay tax. This approach is much more useful than an undifferentiated set of company records.

Where a director, representative or appointed person is asked to provide information, respond accurately and preserve privileges that apply. Do not destroy records, backdate minutes or move assets to avoid collection; those actions can create separate legal risks. At the same time, do not make an unqualified admission of personal liability before the statutory provision, tax decision, asset trail and role evidence have been reviewed.

• Identify whether the allegation concerns representative, appointed-person, director or controlling-member liability.
• Request the statutory provision, tax decision, computation and factual basis for the demand.
• Preserve role records, appointments, board minutes, bank mandates and asset-transfer documents.
• Separate the company’s assessment challenge from the individual’s personal-liability response.
• Record any dissent, lack of benefit, lack of executive role or lack of knowledge with evidence.
• Coordinate tax, company and insolvency advice before assets are distributed or transferred.

Personal exposure for company tax is a serious statutory consequence, but it is not automatic. The law requires a defined connection between the person, the taxpayer, the assets or the arrangement in question. A careful, evidence-led response protects legitimate corporate separation while ensuring that representatives and officers understand the duties that arise once they control taxpayer assets or become aware of an arrangement that may impair tax recovery.

Official source: Tax Procedures Act, 2015 — sections 15 to 18.