In Mr James Keighley (1) Primeur Limited v HMRC  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
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.
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How to appeal an HMRC decision
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