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Dividends taken by non-Shareholder!

Client's partner "believed" they were a Director and Shareholder - turns out are neither!

Didn't find your answer?

New client taken on. Previous Accountant completely messed up years worth of Company Accounts - that's a separate mess we are dealing with.

Now, I have the pleasure of informing them that one of the 2 business partners has never been a Director or Shareholder of the Company.

3-4 years' worth of SA have been filed for this partner, with around £250k of dividends declared in her name - meanwhile she wasn't even a shareholder

Anybody know where to begin with this?...

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By rmillaree
05th Nov 2021 15:13

Do you know that your assumption that they are not a shareholder is correct ?

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Replying to rmillaree:
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By Anonymous
05th Nov 2021 15:19

Yes, no share transfer ever filed with Co House. No Director appointment ever filed. Client had presumed Accountant had filed all of this, but they never bothered

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Replying to :
RLI
By lionofludesch
05th Nov 2021 17:24

Quote:

Yes, no share transfer ever filed with Co House. No Director appointment ever filed. Client had presumed Accountant had filed all of this, but they never bothered

That doesn't mean that the client wasn't a shareholder or director. The dividends definitely indicate share ownership. You might find evidence of directorship somewhere.

What it does mean is the filing hasn't been done.

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By Tax is always taxing
05th Nov 2021 15:17

Weren't they a shareholder, or had incorrect filings been made with companies house, sounds like it may be the latter.
Run it by their solicitor of course, but retrospective filings could be in order, seen it plenty times before.

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Replying to Tax is always taxing:
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By Anonymous
05th Nov 2021 15:20

No share transfer ever filed with Co House. No Director appointment ever filed. Client had presumed Accountant had filed all of this, but they never bothered.
However, Accountant continued to file SA for the non-SH partner which included the dividends!

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Replying to :
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By Paul Crowley
05th Nov 2021 15:25

No such tranfer needs to be filed
And if done is not available to the public

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Replying to Paul Crowley:
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By Anonymous
05th Nov 2021 15:29

Presumably you mean because gifted and no proceeds for the shares...so no J30 needed for filing..

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By Tax is always taxing
05th Nov 2021 15:51

I think you have misunderstood my point. I am aware what has been filed doesn't reflect what the owners / directors believe to be the case. But just because it is filed at companies house doesn't mean its correct.

You can (in some circumstances) retrospectively file amendments to companies house, i.e. back dated documents to correct the position.

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By Paul Crowley
05th Nov 2021 15:21

Were the shares jointly held, but the PSC wrongly entered?
If husband and wife then joint shares is very common, even preferred over having 50% seperate holding.
Going way back, Kevin Slevin would suggest it as the default position of joint shares is 50% but the percentage can be varied any number of times.
That is what Accountant and client thought was the the case.
Directorship completely irrelevant, other than temporary timing of NI payments

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Replying to Paul Crowley:
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By Anonymous
05th Nov 2021 15:21

No, one S/H had asked for shares to be gifted to her friend.
Accountant said they would, but never did.
The Accountant then continued to file SA's for this friend, which included dividends from the Co.
Director paperwork was also never filed - not that this affects the dividends

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By Paul Crowley
05th Nov 2021 15:33

All parties treated the request as actioned
Just the poxy PSC not properly sorted
Historically only the old Annual return showed the shareholding once a year.
They were done away with five years ago

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Replying to Paul Crowley:
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By Anonymous
05th Nov 2021 15:42

Haven't done a CS's myself for a while - but do you still not have to mention SH changes on them?

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By Paul Crowley
05th Nov 2021 16:11

The submitted return ignores any such change
Look a company up and see the report that is avaivable
It is three pages of nothing

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Replying to Paul Crowley:
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By Tax Dragon
05th Nov 2021 15:30

Relying on suggestions from way back... really? Eg doesn't Arctic render that advice dangerously wrong in the modern world?

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Replying to Tax Dragon:
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By Paul Crowley
05th Nov 2021 15:41

Not really
Joint shares perfectly good and I still operate that way now for married persons
I am looking to sort that today following the confirmation from clients last night.
But never have done it for friends and associates.
All I need to do is change the PSC
I have lots of 1 £1 share companies in joint ownership

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Replying to Paul Crowley:
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By Tax Dragon
05th Nov 2021 15:59

Well, don't say I didn't warn you. If* ever HMRC does get its p00p together, I would venture that some of those lots of companies you mention are not on wholly secure ground.

*Helluva big if, of course.

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Replying to Tax Dragon:
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By Paul Crowley
05th Nov 2021 16:29

Disagree
No CGT issues and both working in the business
If you qualified your comment by saying that Freda come lately that has never seen the building and not been involved from the start point then those may have an issue
But you appear to declare things are wrong with out adding any context for that opinion
Arctic was the weakest case that HMRC could find with wife admitting things that made an HMRC win almost guaranteed.
They still lost
That was with one man doing all the productive work, no employees or subcontractors no sales of stuff no fixed assets........

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Replying to Paul Crowley:
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By Tax Dragon
05th Nov 2021 16:52

I disagree that Arctic was HMRC's easiest target. IMHO, one with joint shares would have been a lot softer. Arctic avoided that pitfall. (Don't forget HMRC didn't lose all aspects of Arctic.)

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Stepurhan
By stepurhan
05th Nov 2021 15:23

I assume you have verified the shareholders using Companies House filings (not trusting any registers the previous accountant kept). The first question is, if this lady wasn't a shareholder, who was?

If I were a betting man, I would guess 100% the other business partner,

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Replying to stepurhan:
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By Anonymous
05th Nov 2021 15:25

Yes correct, Co House confirms that original business partner holds 100% of shares still

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By More unearned luck
05th Nov 2021 17:25

See s 127 CA 2006. Save for companies that use CH as their reg of members, it is the company's register that provides prima facie evidence (ie not what's in any AR or CS.)
See s 126. Only the legal owner is be entered in the reg. Not details of the beneficial owners, if different. (Hence, latterly in this age of openness, the need for the PSC rules).
(Were ss 126& 127 considered in the case Justin links?)

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Replying to More unearned luck:
RLI
By lionofludesch
05th Nov 2021 17:41

Quote:
Hence, latterly in this age of openness, the need for the PSC rules.

Well, yes - if you could rely on PSC records being accurately recorded at Companies Hiuse.

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Replying to More unearned luck:
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By Paul Crowley
05th Nov 2021 19:18

Back in the good old days a company needed two shareholders.( The word really means plural.) For a one man company the bank was often the nominee shareholder, but not beneficial holder

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Replying to Paul Crowley:
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By More unearned luck
08th Nov 2021 20:26

My point is that you if the company had regard to s147 then the fact that the bank (or whoever) was a nominee wouldn't be apparent from the reg of members and thus neither from the AR/CS. Although in practice banks and stockbrokers holding shares on behalf of investors would have a separate holding for each investor with the a/c number added to the bank/broker's nominee company's name, eg "Black Horse nominees Ltd a/c 123456".

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By rmillaree
05th Nov 2021 18:10

"Yes correct, Co House confirms that original business partner holds 100% of shares still"
Sorry to be picky here - but companies house only confirms what it has been told- not what the truth is! - hopefully that statement makes sense in the light of uncertainties here!

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By Tax Dragon
05th Nov 2021 15:33

As has been suggested above, this sounds like primarily a legal issue. For such an issue, I recommend taking advice from a legal advisor. It's what they're there for.

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By ireallyshouldknowthisbut
05th Nov 2021 16:12

As above it sounds like the partner had economic ownership of the shares, even if the legal title is vague.

Update the CH record with the correct ownership.

Warn client of potential consequences and advise them to take legal advice (they probably wont)

Move on.

I am interested what happened with any CGT on the transfer.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
05th Nov 2021 16:54

I so agree
The alternative is a claim for subcontract work as wife or girlfriend worked for the business remuneration free on the understanding that all parties agreed on

Why would anyone labour the issue

Co law says companies must keep records etc but nobody enforces it
Accounts need to be signed but no rule to say they cannot be chucked straight in the recycling

CGT
We have no information as to the value of the company
What would the market value be for shares that probably need to be offered back anyway, and come with an unknown history and no agreed written terms should the company fall foul of prior tax irregularities
Could easily be below the annual allowance

If agent treated as a transfer, reasonable to assume that it was considered at the time

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Replying to Justin Bryant:
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By Paul Crowley
05th Nov 2021 17:22

Good link
The clients decided to do the company secretarial and annual returns themselves
A regretable decision
Only one share issued but the idiot accountant thought there were two issued
That case demonstrates why DIY and on line portals can lead to disater

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Replying to Justin Bryant:
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By Tax Dragon
05th Nov 2021 17:24

Another contender for someone who should have taken legal advice. (It might have been a far cheaper option. It's funny how genuinely wealthy people do pay for good advice. I wonder if there's a connection.)

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By paulwakefield1
05th Nov 2021 16:49

Don't forget that, should the PSC be wrong, you are obliged to report the discrepancy to Companies House given that it is a new client.

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By David Ex
05th Nov 2021 16:56

Thanks everyone. Some useful comments.

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Replying to David Ex:
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By Hugo Fair
05th Nov 2021 17:09

If you are OP then you need to get mods to edit the 'name' shown on last post ... if not, apologies for drawing an inference from your 'rounding-up' comment.

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Replying to Hugo Fair:
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By Paul Crowley
05th Nov 2021 17:26

This definitely was not David's post
It was not Anon 'till quite late in the day

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Replying to Paul Crowley:
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By David Ex
05th Nov 2021 18:29

Quote:

This definitely was not David's post
It was not Anon 'till quite late in the day

Quote:

If you are OP then you need to get mods to edit the 'name' shown on last post ... if not, apologies for drawing an inference from your 'rounding-up' comment.

:)

Not sure why the question needed anonymity, to be fair.

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Replying to David Ex:
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By Paul Crowley
05th Nov 2021 19:22

Nor me
But thanks for thanking all the contributors
Anon forgot

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Replying to Paul Crowley:
Ben Steele
By Ben Steele
05th Nov 2021 19:35

Didn't forget, was busy with something that's all
Have thanked everyones comment here each time, as I am grateful for responses

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Replying to BSteele:
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By Paul Crowley
05th Nov 2021 20:08

Whoops
Hugo's comment now stands
It can save time to just press the thanks button
Accepted that you do not comment or respond very often

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