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HMRC internal manual

Enquiry Manual

Close Companies: Tax Cases: Settlement on Directors

Hudson v Humbles 42TC380

A capital statement drawn up by the Inspector for Hudson, director and controlling shareholder in Hudson, Dodsworth and Co Ltd, showed deficiencies, and Schedule E assessments were accordingly made on Hudson. The Revenue had no direct evidence to establish that the capital statement deficiencies were remuneration from the company. No evidence was given by or on behalf of Hudson before the Commissioners. In the High Court, Hudson’s Counsel argued that there was a duty on the Inspector to establish the precise source of the deficiencies. In the absence of any rebutting evidence to the Revenue’s prima facie contention, the judge did not agree. It was not contended by Hudson that the capital statement deficiencies should have been assessed as `company money’.

Frowd v Whalley 42TC599

Frowd was managing director of a company Frowd and Sons Ltd. Capital reconciliation statements showed deficiencies and Schedule E assessments were made on Frowd in respect of the deficiencies. Before the Commissioners, Frowd admitted that some part of the deficiencies came from the company, the rest representing loans and gifts from relatives, savings from frugal living etc. In the High Court he further argued that sums received by him from the company must have been stolen and were not therefore assessable as remuneration. The High Court upheld the Revenue contentions. It was not argued that the deficiencies should have been assessed on the company.

James v Pope 48TC142

Capital reconciliation statements prepared for James, and straddling a period of sole trading through a family company, showed deficiencies of £4,000, and assessments were made under Schedule D and (for the company period) Schedule E. The contention on behalf of James was that the Revenue had not discharged the onus of establishing fraud and wilful default, and that there was no evidence that the capital statement deficiencies (in the company period) had been voted as remuneration by the company. The High Court upheld the Commissioners decision as being reasonable. There was no contention that the deficiencies should have been assessed on the company.

Murphy v Elders 49TC135

Following an investigation, Schedule E assessments were made on Murphy and alternative Schedule D assessments on G L Murphy Ltd, his company. The company appeals were heard first and the General Commissioners held that on the balance of probabilities, the company’s accounts were correct. The Schedule E appeals were heard later by a different panel of Commissioners, who held that Murphy had been guilty of wilful default and determined the assessments in figures based on the capital reconciliation statements.

Murphy was represented in the High Court by C W Koenigsberger, who raised several contentions (for example, that the assessments did not identify Schedule E source of income, the Crown was stopped from impugning the validity of the company accounts which had been accepted as correct in relation to the company appeals, that if money had been diverted from the company Murphy held it in a fiduciary capacity and it was not therefore emoluments). The Commissioners decision was upheld.

Jonas v Bamford 51TC1

Jonas, at all relevant times the controlling director of Baker Sportswear Ltd, was the subject of an investigation and assessments were made on him for eight years on the footing that he had received undisclosed remuneration from the company. He advanced a betting story. The appeals were heard by the Special Commissioners, who vacated the first assessment (an ETL assessment) but confirmed the remaining seven. In the High Court his counsel advanced various technical points (for example, no discovery etc). He also made great play of the fact that, as the Inspector had agreed before the Special Commissioners that there was no evidence that the other directors and shareholders of the company had given consent to the withdrawal of the sums now assessed, the appellant was misled into not arguing that had the sums been irregularly extracted, Jonas would remain accountable to the company for them and could not therefore be charged under Schedule E

The High Court upheld the assessments.

It was not contended that the amounts in question should have been assessed on the company.