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Readers' Forum - Honesty: the best policy?

23 June 2005
Issue: 4013 / Categories:

We have been asked to advise a new client on a continuing Revenue enquiry. Our client and her now estranged husband operated a business in partnership, which was later incorporated. She noticed that takings were substantially down and challenged her husband about this. He responded by denying her access to the records. She therefore refused to sign the company's statutory accounts, resigned as a director, has started divorce proceedings, reported him to the police for theft and to HM Revenue and Customs for tax evasion.

We have been asked to advise a new client on a continuing Revenue enquiry. Our client and her now estranged husband operated a business in partnership, which was later incorporated. She noticed that takings were substantially down and challenged her husband about this. He responded by denying her access to the records. She therefore refused to sign the company's statutory accounts, resigned as a director, has started divorce proceedings, reported him to the police for theft and to HM Revenue and Customs for tax evasion.
Although the police supported our client's view, there was not enough evidence to support a criminal prosecution. Our client, as you can imagine, has been more than helpful in assisting HMRC in their enquiries, but has not been able to provide them with all the records they need, given her lack of access. The company's bank account was used to pay all personal living expenses for both parties, which were charged to a directors' loan account, the credit being the creation of goodwill on incorporation, the valuation of which HMRC are also querying. From the information they have, HMRC are proposing to raise assessments on both parties, treating these withdrawals as equal net salary under PAYE regulations. Given limited funds in the company, HMRC have said that they will look to the directors personally for payment. They are also looking at raising additional profit assessments based on poor gross profit margins for both the company and the former partnership.
Our client refuses to accept culpability, claiming not to be a director as she had submitted a resignation form to Companies House which was accepted even though it was backdated. She feels that even though she blew the whistle, she is now being penalised.
Readers' comments would be appreciated.
Query T16,629 

Issue: 4013 / Categories:
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