Tribunal – Relying on a dilatory agent

In a recent case, a company claimed to have a reasonable excuse for failure to file annual employer’s returns. The Tribunal disagreed.

The company in question had failed to submit employer’s end of year returns for the financial years 2006/7, 2007/8 and 2008/9. The company director first heard of the matter when he received a penalty notice from HMRC in May 2009 in respect of the 2008/9 tax year. The director had relied upon his company secretary to file the returns, a task for which he had accepted responsibility when he had been appointed.

The company secretary had said that he had filed the returns, but was unable to produce any copies to that effect. The taxpayer company had been charged on an annual basis for the services of a full company secretarial service – which the Company Secretary had sub-contracted to a firm of accountants.

On hearing that the returns had not been submitted, the company director immediately changed his accountants. The new accountants filed the employer’s end of year returns and these had been accepted by the HMRC.

There was no proof whatsoever that the company secretary had filed the employer’s end of year returns, a fact which the tribunal appeared to accept. However the tribunal did not accept that reliance on a dilatory agent constituted a ‘reasonable excuse’. The tribunal said that the ultimate responsibility for filing the return falls ‘on the shoulders of the employer and that responsibility cannot be transferred to an agent acting on the employer’s behalf’.

The tribunal therefore found that the taxpayer company had no reasonable excuse and the penalties levied by HMRC were upheld. The taxpayer’s appeal was dismissed.

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The Tax Man

The Tax Man

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At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

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Business Valuation in Distress

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After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

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In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.