This is a cautionary tale for clients who struggle to make the distinction between their own money and funds that belonging to their company.
The trouble started when HMRC investigated the company: Matharu Delivery Service Ltd, which is entirely owned by the director: Bhapinder Matharu. HMRC naturally wanted to see a complete breakdown of the director’s loan account, as it was clear there were large cash withdrawals and company cheques were paid to betting companies.
HMRC asked for a copy of the director’s loan account, showing dates, amounts and descriptions of each transaction in chronological order. When this was not produced HMRC issued an information notice under FA 2008 Schedule 36.
When the accountant eventually produced an analysis of the loan account, it appeared that he had averaged certain payments across the year. For example, Matharu’s “salary” of £8,695 was credited to the loan account at £725 per month when it was actually paid haphazardly as part of much larger amounts. As a result, the amount outstanding as shown on the loan account at the end of each month did not reflect the true position of monies due to, or from, the director.
HMRC was not satisfied with the information provided by the company so it issued an information notice to the director to produce his personal bank account statements, as well as £300 penalty for non-compliance with the company’s notice.
The director challenged his own information notice on the basis that HMRC did not have reason suspect that his personal tax return was incorrect.
The FTT found there was a significant discrepancy between the wages paid to Matharu as evidence by the company’s bank statements (£40,060) and the salary declared on his P60 (£8,786). This was enough reason for HMRC to demand production of all of the director’s personal bank statements for the year.
Written by the Tax Advice Network