The Use of company banking facilities for personal transactions recently caused one taxpayer some unwelcome attention from HMRC.

In The First Tier Tribunal Case of Matharu Delivery Service Ltd TC7347 and Bhapinder Matharu TC7324 a company and its director, failed to show why it was unreasonable of HMRC to demand a detailed directors’ loan account schedule and copies of his private bank statements.

HMRC had opened an enquiry into the company and there were unexplained cash movements between the company and the director’s private account which did not tie into dividends or wage records. HMRC consequently wanted to check the director’s loan account and it was unable to reconcile the information provided. This lead to further enquiries into the director’s personal tax position.

HMRC has the power to make a written request for a taxpayer to provide information or produce a document provided that the information or document is “reasonably required” by the officer for the purpose of checking the taxpayer’s tax position. If a taxpayer fails to comply with the notice a penalty is due.

The director appealed the requirement to provide private bank statements on the basis that details of dividends and wages had been provided and therefore the conditions that enable the request for information to be made had not been met because no non-disclosed source of income has been identified. All information to collaborate the entries on the tax return had been provided. The tribunal did not agree: the cash movements between director and company were not explained.

In a separate hearing, the company appealed a against a penalty for failing to comply with the request. It had refused to provide a detailed chronological schedule of its directors’ loan account. The company’s excuse was that it did not wish to pay its accountant for the extra cost. The First Tier Tribunal dismissed this appeal too.

We always recommend that director’s salaries are paid in accordance with the agreed schedule that is reporting to HMRC, that dividends are supported by dividend vouchers and board minutes and that use of company banking and credit facilities is restricted to company expenses. If any client who wishes to be provided with free company secretarial software for the purposes of producing dividend vouchers and supporting board minutes, then please let us know.