The corporate veil

The corporate veil

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I've had an odd situation pop up and don't know what the correct approach is.  I have a client who set up a limited company for his business back in June 2009.  The company was dissolved in February 2011.  No accounts were ever filed, and no corporation tax was ever paid.  He also had a business bank account in the name of the limited company, which has only just been closed.  Transactions went through the limited company business bank account.  He is now operating as a sole trader, and has a sole trader business bank account.  The business is made up of a holiday villa rental, plus some extras (e.g. cycling tours).

I am working through his personal tax return for the tax year ended 5 April 2011.  Should I treat his limited company business bank account transactions as his personal transactions?  It feels like the right thing to do, but I'm not sure whether its appropriate to do so, or if I should only do so from the point at which the limited company was dissolved and treat the net of the remaining transactions as a dividend.  The numbers involved are not significant (less than £5k profit).

Any advice would be very welcome!

Replies (8)

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By pjclar02
02nd Dec 2011 09:49

I would say that any transactions up to the date of dissolution are company transactions and these dissapeared with the company.

The remaining bank balance at the date of dissolution would then belong to the Crown under the bona vacantia rules (the account should have been frozen).

So to anwaer your specific query, my view would be that none of the transactions in the limited company bank account would be incorporated into the personal tax return.

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Euan's picture
By Euan MacLennan
02nd Dec 2011 09:56

No

I agree with pjclar02.  You cannot include the company's trading as if it were the individual's.

If corporation tax was payable and your client initiated the dissolution of the company in order to avoid paying the tax, you need to make a money laundering report to SOCA.

 

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By Novakova
02nd Dec 2011 16:01

Re: The corporate veil

One is usually faced with the opposite problem:  A client trades as A N Other Ltd issuing and receiving invoices as A N Other Ltd, but the bank account in his own name, A N Other.  This saves bank charges.  Would any of you clamp down on it?

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By Tonykelly
02nd Dec 2011 16:22

Saloman v Saloman & Co

This case is the cornerstone of the principle that the company has a separate identity, distinct from your shareholders and directors.

There are situations where your veil can be lifted, ie your director becomes responsible rather than the company.

This is a case for a money laundering report, as there has been fraudulent activity (as pointed out above).

Refer to section 213 Insolvency Act 1986 Fraudulent Trading and section 214 Wrongful Trading.

HMRC will lift the veil, but from your point of view, I would leave the veil alone (also as pointed out above).

As regards the query by Novakova, the use of a personal account for banking company receipts can create problems with overdrawn loan accounts etc. Also there would be issues to deal with if the company was wound up. However, one potential solution would be to sign a declaration of trust to the effect that the personal account was holding the funds in trust for the company. Best solution is of course to open a company bank account.

Santandare offer free business banking.

 

 

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By Euan MacLennan
02nd Dec 2011 16:40

Private bank account

I don't think that anyone would treat the company's trade as a self-employment on A N Other's personal tax return just because the transactions are passing through a private bank account.  As the invoices are in the name of the company, everyone would include the trade in the company's accounts.

Opinions differ on the treatment of the private bank account balance in the company accounts.  Some of us consider that it should be treated as a Director's Loan Account and s.455 tax paid if necessary.  Others believe that it can be regarded as held by A N Other on a bare trust for the company, despite the bank not knowing that it is a trust account.  Most of us consider that it is an unsatisfactory situation and that the client should be strongly advised to open an account in the company's name.

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By Novakova
03rd Dec 2011 08:13

Re: The corporate veil
I see that "opinions differ on the treatment of the private bank account balance in the company accounts". Would the client's opinion carry any weight?
Is using a personal credit card for business purposes an equally unsatisfactory situation?

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Nichola Ross Martin
By Nichola Ross Martin
03rd Dec 2011 09:07

Tax penalties?

The company has failed to observe any of its filing obligations and the director appears to have steered it to evade paying tax. I cannot guess what was in the director's mind. The company's assets are bona vacantia and the Crown's property. If the director has pocketed its cash then it appears that perhaps his honesty is questionable.

You will have to report this under the MLR. You cannot tip off the director, but he should get legal advice and this may be the tip of an iceberg too. HMRC will come after directors personally in this situation - if they think there is some tax to recover.

Sole trader accounts: provided that you are stll happy to act for this person the you cannot add in the company income or expenditure into the accounts.

It is quite possible for a sole trader though to act as bare trustee to a company, so if any company income went into the sole trade accounts then this should be excluded and reported back to the Crown (it owns this now).

Virutal tax support for accountants: www.rossmartin.co.uk

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By Georgina Rollings
04th Dec 2011 18:05

Thank you all for your comments, it sounds like I have walked into a mess... Your advice is very much appreciated and I will be following it tomorrow.

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