In Douglas Boulton v HMRC [2026] TC09846, the First Tier Tribunal (FTT) found that a director’s settlement agreement with the liquidator of his company resulted in his director’s loan account being released or written off, giving rise to an Income Tax charge.
Mr Boulton was the sole director and shareholder of Sameday Express UK Ltd (SEUK Ltd).
- SEUK Ltd’s 28 February 2013 accounts and Corporation Tax return recorded a Director’s Loan Account (DLA) balance of £151,802 owed by Mr Boulton.
- On 12 June 2014, SEUK Ltd entered Creditors’ voluntary liquidation. The Statement of Affairs, signed by Mr Boulton, showed that he owed only £18,000.
- The liquidator queried the inconsistency and continued to pursue the debt recorded in the 2013 accounts.
- On 10 March 2020, Mr Boulton and the liquidator entered into a settlement agreement under which Mr Boulton agreed to pay £60,000 in full and final settlement of the liquidator’s claims.
- This was expressly stated to be without admission of liability.
- At HMRC’s request, the liquidator wrote to Mr Boulton on 27 April 2020, stating that the remaining balance above £60,000 was “effectively written off” and advising him to declare the amount on his tax return.
- Mr Boulton submitted his 2019–20 tax return on 1 April 2021, but did not include any amount arising from a release or write‑off of the DLA. No white-space disclosure was made.
- As the settlement agreement was on a non-admission basis, Mr Boulton’s view was that it did not operate to release or write off a debt.
- After reviewing Mr Boulton’s tax return on 2 February 2023, HMRC issued a Discovery assessment, taxing Mr Boulton on £91,802 (£151,802 less £60,000) under S.415 ITTOIA 2005.
- On 4 September 2024, HMRC issued a Penalty assessment of £5,223, being 15% of the potential lost revenue of £34,823.
- Mr Boulton Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- SEUK Ltd’s accounts and tax returns were signed by Mr Boulton as director and provided reliable evidence of SEUK Ltd’s accounting position.
- No accounting evidence or documentation was provided that could overturn the recorded balances.
- The Statement of Affairs was not drawn from SEUK Ltd’s accounting system and could not displace the contemporaneous statutory financial statements.
- Mr Boulton's debt had been released for the purposes of s.415(1)(b) ITTOIA 2005, which resulted in an Income Tax charge notwithstanding the absence of an express admission of liability in the settlement agreement.
- Before the settlement, the liquidator had actively pursued recovery of £151,802.
- Following the settlement agreement and payment of £60,000, the liquidator ceased all recovery action and notified Mr Boulton in clear terms that the remaining balance was treated as written off.
- Even if the debt had not been released, it had been written off.
- In Gary Quillan v HMRC [2025] TC09487, the liquidator expressly stated a loan had not been written off. This contrasted with the position here, where the liquidator expressly stated the debt had been effectively written off and had ceased enforcement.
- While the liquidator did not undertake a formal statutory write‑off process, s.415 does not require adherence to any particular insolvency mechanism. S.415 requires a substantive write‑off, and this was effected by a clear and unilateral decision by the liquidator no longer to pursue the balance. This was unequivocally communicated and followed by the cessation of enforcement.
- HMRC's discovery assessment was valid.
- In accordance with HMRC v Raymond Tooth [2021] UKSC 17, discovery is not confined to new facts. HMRC’s officer made a discovery on 2 February 2023 and it was that officer’s state of mind which mattered, not the wider institutional knowledge that may have existed elsewhere within HMRC.
- The statutory bar in s.29(5) TMA 1970 did not apply as the test focuses on whether an officer could reasonably have been aware of the insufficiency from the information made available in or with the relevant return.
- Material held by HMRC does not constitute information ‘made available’, unless it accompanied the return or was provided in the course of an enquiry into it.
- The inaccuracy in Mr Boulton’s tax return resulted from his failure to take Reasonable care.
- Mr Boulton relied on informal conversations with his accountant and solicitor. A prudent taxpayer would have sought clear written tax advice before omitting an amount they had been expressly told to declare.
- It was not reasonable in the circumstances for Mr Boulton to simply treat the liquidator’s letter as a statement of HMRC’s view and neither follow its instruction, nor include a white‑space disclosure in his self-assessment return.
The appeal was dismissed.
Useful guides on this topic
Directors' loan accounts: Toolkit (subscribers)
What is the tax treatment for an overdrawn director's loan account? What are the consequences of an outstanding loan to a participator?
Loans to participators (Close Company Loans toolkit)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work? What are the concerns with indirect loans, upstream loans and MBOs?
Liquidation
How do you wind up (liquidate) a company? What types of liquidation are there? What are the formalities and the tax consequences of liquidation?
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?
Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
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