A chartered engineer has been handed a bill for £41,450 over a mistake made with dividend payments.
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 problems arose in 2004, when the engineer’s company began to make a profit. The accountants told him how to take money out of the company in dividends, which were to be split equally between him and his partner.
However, two years later, the engineer found that the company accounts did not tally with what the accountant had told him. In fact, the accountant had never completed the correct forms to distribute shares in the manner that was agreed.
HMRC then held that the engineer in fact owned all of the shares in the company, and was therefore liable for all of 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. He was charged for four years of underpaid tax, and given penalties for careless mistakes.
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.
Were HMRC right to fine the business owner? Or should they have been more lenient? Let us know below.