A chartered engineer has been made to pay £41k to the HMRC over a mistake on their tax return.
The engineer and his partner established a so-called ‘off-the-shelf’ company on the advice of an accounting firm, in order to secure work from new clients. The accountants told him that he and his partner would each hold one share in the company.
Now, though, a tax tribunal has upheld a claim from HMRC for more than £40,000, following discrepancies in the engineer’s tax return and the shareholding details kept with Companies House.
Where the problems started
The problem started in 2004 when their accountant advised them to take dividends from the company to reduce their tax liability. This is common practice by accountants, it essentially utilise both parties tax allowance to reduce their tax bill.
Unfortunately, the accountant had never filled the correct formed with companies house for the shares to be split in such a way. making dividend payments in such a way impossible. The HMRC highlighted that the engineer actually owned all the shares in the company, making him liable for the tax.
Take care with your accounts
While upholding HMRC’s claim, the tribunal also ruled that the engineer was careless in not noticing the real state of the shareholding earlier, given that he signed the company accounts. It is important to highlight that although you may have an accountant. It is the directors responsibility to ensure they’re happy with the accounts.
Could the accountancy firm be liable?
The engineer, although deemed careless, could now look to sue the accountancy firm on the grounds of negligent advice.
And whilst the accountancy firm could be set for a heavy compensation payout, businesses offering advice will often take out a form of professional indemnity insurance to cover themselves in this type of scenario.
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