In Mr James Keighley (1) Primeur Limited v HMRC [2024] TC9023, the First Tier Tribunal (FTT) found that a director’s personal use of his company’s credit card resulted in six years worth of tax assessments and penalties. Worse still, a write-off of an intercompany loan was ruled to have a disallowable purpose.

A director used his company credit card to pay for personal expenses for many years. He did not reimburse his company Primeur Limited (P Ltd) nor declare the amounts on Form P11D or his personal tax return.

P Ltd also had lent cash to another company, owned by the director and another shareholder to allow it to invest in property.

P Ltd subsequently wrote off that intercompany loan account and claimed bad debt relief.

HMRC opened an enquiry into P Ltd and after finding careless behaviour by the taxpayers raised Discovery Assessments covering a six-year period.

  • HMRC assessed additional director’s remuneration from 2012 to 2017 after finding that about 50% of the first appellant’s credit card spend was for personal use.
  • HMRC disallowed the loan write-offs, on the basis that the companies were connected and the write-off of the intercompany loan was for an allowable purpose under the Loan Relationship rules.
  • HMRC issued tax Penalties for errors and mistakes.

On appeal, the FTT found that:

  • The company had poor controls over its credit cards and petty cash and did not report the director’s expenses. This was a careless course of action. Discovery assessments were upheld and penalties were down-graded from deliberate to careless.
  • Tax advice had been given to the company in respect of the loan relationship and the FTT was satisfied that the P Ltd and the other company were not connected at the time of the write-off. The company was not careless in this issue.
  • The write-off of part of the loan by the company favoured other lenders and deliberately deprived it of income: this meant it had an unallowable purpose which was not amongst the business or other commercial purposes of the company.

Useful Guides on this Topic

Pecuniary Liabilities
Where an individual incurs a liability personally but it is paid by their employer special rules apply to report the benefit for employment tax purposes. This is referred to as settlement of a Pecuniary Liability.

Loan Relationships 
What is a loan relationship? How are profits and losses made from loan relationships taxed? What happens if loans are written down or written off? What is the difference between a trading and non-trading loan relationship? What are the rules for connected party loans?

Recovery of PAYE: Regulation 80 and 72 assessments for PAYE
When can HMRC assess an employer or an employee for unpaid Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs)? What is a regulation 80 determination? What is a regulation 72 determination? Who is assessed and what are the conditions?

P11D: Reporting benefits and expenses
How do you report benefits and expenses? What is the P11D deadline?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Mr James Keighley (1) Primeur Limited v HMRC [2024] TC9023