In a reminder to entrepreneurs that the tax authorities are wide awake and alert to accounting discrepancies, a businessman who under-declared his dividends on the mistaken basis that his wife owned 25 per cent of his company has been hit with a substantial retrospective Income Tax bill.
The businessman was the registered owner of 50 per cent of the shares; however, in two tax years, he had declared his dividends on the basis that he owned only 25 per cent of them and that his wife was the proprietor of the other 25 per cent. HM Revenue and Customs (HMRC) noticed the oddity in the company’s accounts and, following an inquiry, the businessman received a tax demand for almost £16,000.
Challenging the assessment, he argued that his wife was the beneficial owner of a 25 per cent shareholding. However, in dismissing his appeal, the First-tier Tribunal (FTT) noted the absence of evidence that he held half his shares on express or implied trust for his wife.
Although he was not involved in the day-to-day management of the business, and left accounting matters to the company secretary, the FTT found that he could not be absolved from his legal responsibilities as a signatory of legal documents or from his duty to give correct information to HMRC.