In 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.
Schedule 36 of Finance Act 2008 gives HMRC the power to make a written request an Information Notice 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 Schedule 36 Penalty is due.
- HMRC had opened an enquiry into a 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 wanted check the Director's loan account: it said to check whether any beneficial loan interest was due and it was unable to reconcile the information provided. It also enquired into the director's tax position.
The director appealed the requirement to provide private bank statements on the basis that details of dividends and wages had been provided and so Condition B is not met because no non-disclosed source of income has been identified. All information to collaborate the entries on the tax return has been provided. The tribunal did not agree: the cash movements between director and company was not explained.
In a separate hearing, the company appealed a against a penalty for failing to comply with a schedule 36 notice. 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 FTT dismissed this appeal too.
Comment
A timely reminder for directors to review their transactions with their companies and to ensure that dividends and salaries are voted in good time.
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?
Sch 36 Penalties
Failure to respond to an Information notice under Schedule 36 FA 2008 will lead to a tax penalty, as determined by HMRC. In cases of extreme default the Upper Tribunal may also impose tax geared penalties.
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
Matharu Delivery Service Ltd v HMRC [2019] TC7347
Bhapinder Matharu v HMRC [2019] TC7324
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