In Grangewood Enterprises Limited/Anthony Marsden v HMRC [2021] TC08264, a director transferred an intangible asset to his company for £4m, to clear his outstanding director's loan account. Finding no evidence of such a valuable asset the First Tier Tribunal (FTT) confirmed HMRC assessment of a penalty and Personal Liability Notice (PLN) on the director, personally. The company had deliberately submitted inaccurate accounts and CT600 with the director's knowledge. 

  • Mr Marsden was the sole shareholder and director of Grangewood Enterprises Limited, which dealt in real estate.
  • Mr Marsden had an outstanding Director's loan account (DLA) of £3 million for the year ended 30 September 2015 and the company had paid the s.455 tax of £704,000.
  • For the year ended 30 September 2016, accounts and the CT600 were filed showing a further £379,641 owing on the DLA (with s.455 tax of £103,472 due).
  • An intangible asset was shown as being transferred to the company by Mr Marsden. It was valued at £4 million and put the DLA into credit.
  •  A Repayment claim for the s.455 tax was also submitted.
  • HMRC opened an enquiry into the repayment claim and the return in general. Documentation supporting the value of the intangible asset was requested: it was an option to purchase shares worth $5 million and a convertible security of $5.2 million in value.
  • Six months later, the company's advisers wrote to HMRC saying that they could not verify the value and were withdrawing the claim and amending the accounts. Amended accounts and CT600 were then submitted and the tax liability agreed,
  • HMRC raised a Penalty against Grangewood for 52.5% of the potential lost revenue (PLR) (the s.455 tax liability) for Deliberate inaccuracy with prompted disclosure. A Closure notice was also issued for the tax return.
  • Mr Marsden was issued with a Personal Liability Notice for 100% of the penalty: he was responsible for the inaccuracy and had sought to benefit personally from it.
  • The company's advisers initially claimed they had simply input the transaction without verifying it, but later claimed that they had advised Mr Marsden to undertake the transaction in an attempt to gain trading deductions for any future expenditure. At no point were they able to provide any advice received or valuations obtained proving the asset to be genuine.
  • The advisers also claimed Mr Marsden had placed reliance on them regarding the transaction as he was elderly and would not have understood the accounting. Mr Marsden had filed papers with Companies House stating he was an accountant and he had multiple directorships.
  • It was alleged that the s.455 repayment claim (under s.458) was unintentional and generated by the IRIS software.
  • The penalties were appealed.

The FTT found that:

  • The claims of fact of the advisers were inconsistent and it was clear that they had doubts as to the value of the asset before the accounts and CT600 were filed. No evidence was shown to support any of the appellant's claims regarding the value of the asset.
  • The fact that the parties involved "consciously or intentionally chose not to find out the correct position" regarding the asset was enough for the inaccuracy to be deliberate.
  • There was nothing to suggest that Mr Marsden had taken any steps to verify the large sums in the accounts and that ignorance was no escape from liability.
  • The PLR is the amount that would have been lost if the inaccuracy had not been corrected. Claims by the appellants that no tax was lost as HMRC had spotted the inaccuracy first are no defence.

The FTT held that the penalty for deliberate inaccuracy was correct and as this was attributable to Mr Marsden, so was the PLN. However, given that the advisers had corrected the inaccuracy, the FTT held this warranted further reduction in the penalty assessed, for the quality and promptness of the disclosure, resulting in a 43.75% penalty (reduced from 52.5%).

Useful guides on this topic

Penalties: Deliberate behaviour
What penalties apply to deliberate behaviour? What is Deliberate Behaviour?

Directors' loan accounts: Toolkit
HM Revenue & Customs (HMRC) do a toolkit for advisers. This is our enhanced version with planning points. 

Close company loans toolkit (loans to participators)
This guide takes 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.

External link

Grangewood Enterprises Limited/Anthony Marsden v HMRC [2021] TC08264


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