In Perfectos Printing Inks Ltd, Perfectos Printing Inks Group Ltd & Dr John Price v HMRC  [2019] TC7203 The FTT decided that an extended check of a director’s personal bank statements was not reasonably required for the purposes of checking his own tax liability or that of his company.

HMRC had opened detailed enquiries into Mr Price and his companies. The enquiries had dragged on and the taxpayers made applications for Closure notices and Mr Price objected to a Schedule 36 Information notice request. This case write up considers that information notice request.

  • Dr Price received a payment of UK £711,618 from Perfectos HK a Hong Kong based company in which he is a director and controlling shareholder.
  • HMRC investigated whether this Loan to a director will be caught under the s455 Corporation Tax Act 2010 legislation as a Close company loan to a participator or if this is a distribution of profits
  • HMRC wished to see personal bank statements and obtain details about the beneficial loan arose.
  • Dr Price had provided copies of his personal bank statements, redacting some balances and the final page of the year was missing.
  • HMRC requested unredacted bank statements.
  • Dr Price Appealed this further request and also applied for a Closure Notice ordering HMRC to end the enquiry into his own affairs

For the Appellant it was argued that as no tax liability would accrue to Dr Price under s. 455 of the Corporation Tax Act 2010 there was no reason to examine his personal bankings.

HMRC argued that the loan may be a distribution of profit and / or falls foul of the disguised remuneration legislation under Part 7A of the ITEPA 2003.

The Appellants said that the dividing line as to what was reasonably required when it came to the provision of personal bank statements, as demonstrated in other relevant decisions lay between those cases where the officer could show a reason to suspect under-assessment and those where the officer was simply on a “fishing expedition”. This proposition was not challenged by the Respondents and the judge said it was ‘a helpful summation’.

The FTT found that Dr Price had provided copies of his personal bank statements and it was satisfied that no further information was required from him.

The judge said ‘I cannot see why the Respondents require to know what Dr Price chooses to spend his money on given that the latter’s means are not in issue….’ Adding that‘ Perfectos HK is a separate legal entity and questions about how it chooses to record the transaction are questions for its board and not Dr Price.’

The FTT also agreed to the application for a Closure Notice, HMRC had enough information as a result of its enquiries to raise an assessment.

Our useful guides

Sch 36 information notices (subscriber version)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

How to appeal an HMRC decision
What type of a decisions are appealable? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Closure Notices
When does HMRC issue a closure notice? Can a taxpayer demand one? Are there appeal rights? 

Close company loans
A detailed look at the corporation tax treatment when a Close Company makes a loan to a participator (director-shareholder). It also provides links to our guides for individuals on the making of loans to companies.

Directors loan accounts tax toolkit
A guide detailing the different outcomes from the personal level of a director when a company makes loans to its directors and participators.

External links

Perfectos Printing Inks Ltd, Perfectos Printing Inks Group Ltd & Dr John Price v HMRC  [2019] TC7203 

 

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