Appointment as a company director is usually a cause for celebration, but it is vital to understand that corporate officers owe a swathe of legal duties, not least to the tax authorities. In one striking case, a woman faced six-figure tax demands and penalties after her abusive partner made her a director of his company.
The man, who had subjected his partner to years of physical and emotional abuse, was disqualified from being a director himself due to previous misdemeanours. It therefore suited him to make her sole director and shareholder of his Internet company. As a result, she was, at least on paper, in receipt of dividends and benefits in kind on which tax went unpaid over a seven-year period.
After he left her, HM Revenue and Customs (HMRC) issued her with tax demands and late payment and inaccuracy penalties totalling £176,888. In challenging the bills before the First-tier Tribunal (FTT), she argued that she had no knowledge of the legal responsibilities that her directorship entailed. Although she had provided the seed capital for the company, she had no role in its management and had reposed absolute trust in her partner.
The FTT noted the woman’s frank acceptance that she had been foolish and that her actions had caused anguish and financial ruin to herself and members of her family. However, in upholding her appeal, it found that her role within the company was that of a mere figurehead. She was only nominally a director and, in reality, her partner had controlled the business and spent its profits.
The FTT acknowledged that the tax authorities might be surprised by the outcome of the case. However, it found that, had HMRC paid more attention to the woman’s account, it would have realised that her partner, not her, was the proper target of the tax demands in respect of income and benefits from the company. Although precise figures remained to be calculated, the woman’s bills would be greatly reduced in accordance with the FTT’s ruling.