A Salutary Lesson

A recent case, Terence Raine v HMRC [2016] UKFTT 0448 (TC), illustrates the dangers for an individual taxpayer trading through a limited company of neglecting corporate responsibilities.

Agents set up a company for the taxpayer. Over a number of years the company voted and paid dividends to the taxpayer and his long term partner on the basis they were equal shareholders (which he maintained had always been the intention).

However, the statutory registers including the register of members were never completed, and the taxpayer signed the company’s annual returns and accounts showing himself as the sole shareholder.

HMRC investigated the discrepancy between the dividends declared on the taxpayer’s tax returns, and the shareholdings declared at Companies House in the annual returns. Despite amended annual returns being filed to show that shares were held equally by the taxpayer and his long term partner, the damage had been done

The tax tribunal held that the long term partner was not a shareholder. As dividends can only be paid to shareholders, the dividend income she had received was assessable on the taxpayer.

The case is a salutary reminder for those setting up and running companies to obtain competent corporate law advice and ensure that there is no mismatch between dividends/ tax returns, and the company’s corporate records and filings.

Author Name: 
Mukesh Khatri