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HMRC internal manual

Enquiry Manual

Penalties: Incorrect Returns, Accounts etc: Companies and duty to deliver a return


The duty of delivering a correct return can only be done by the secretary, or any officer or agent of the company authorised to perform the duty, but the company is liable to the penalty. Often enquiries into the private wealth of directors result in the discovery that company profits have been incorrectly stated in a return or accounts. If such a contention is accepted, or is upheld on appeal, there has clearly been an understatement of company profits due to fraud or negligence, and as the company can only act through its officers the company is liable the penalty.

In a non-tax case (Rex v ICR Haulage Ltd, (1944) 1.All ER 691) the facts proved were held sufficient to justify a finding that acts of the managing director were acts of the company and that his fraud was fraud by the company, and the same principle would apply in relation to negligence.

A company could be held to be guilty of negligence in failing to take adequate steps to prevent a loss being suffered by HMRC as a result of the actions of some of its directors even in a case in which

  • a majority of the shares are not held by the defaulting director or directors and
  • there are innocent directors who were unaware at the time of what was going on.

Any case where it is disputed that the company is liable for any penalty rather than whether the act was culpable should be submitted, with a full report of the facts, to contact link.