HMRC Directors loan account request valid?

Can HMRC request a copy of the DLA upon opening a personal tax enquiry?

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Our client has received notice of an enquiry into his personal SATRfor 13/14 on the basis that the dividends don’t agree to those in the company accounts. Upon checking back, they do agree perfectly so we called to discuss/advice and were told by the Inspector that the accounts downloaded from Companies House show £32000 more than we are telling her are in the company accounts. We explained this is impossible - the abbreviated accounts filed at companies house don’t disclose dividends for one! We offered to submit a copy of the signed full accounts showing the correct dividends and a copy of the accounts downloaded whilst on the telephone from Companies House to show that the balance sheet figures are exactly the same but she was insistent this would not provide enough evidence. She then said she would ask for bank statements to see th dividend payments being made to which we advised this is a typical SME where the drawings are made on an ad hoc basis and dividends declared set against a loan account. She then replied she would issue a notice asking for sight of the DLA. Surely this is not reasonable under a personal enquiry (there is no enquiry open into the company). My thought is that this is probably a data input error when someone their end (or indeed their software) has captured the accounts filed with the CT600 and so the documents I am submitting should be enough to allow her to check the return. Am I right in thinking the request for company working paper file documents is not reasonable here? And how would you argue it without causing alarm bells? Thanks for all/any advice 

Replies (6)

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By Mr_awol
23rd Jul 2018 23:21

I’m slightly confused.

They asked for the bank statements to show the dividends and you told them that the director draws against the DLA which is periodically topped up with dividends voted throughout the year. They then asked for a copy of the DLA (and presumably dividend minutes and vouchers) which is essentially the records you’ve told them they will need to tie it all up.

Now assuming of course there ARE dividend minutes and vouchers (prepared and signed at the time) and you haven’t just stuck random round sum amounts in the accounts to stop the DLA going overdrawn (or keeping the old DLA within £10k) why would you have an issue?

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By frankfx
24th Jul 2018 00:44

Dividend vouchers and minutes are part and parcel of company records and accounts.

The dividend vouchers are used to prepare the self assessment return...not the accountants knowledge of the DLA.

For one moment imagine that a director shareholder has an accountant external to you.....how would that accountant enter dividend income in the tax return.

How would that accountant evidence the veracity of the self assessment return and address an HMRC enquiry into that return... In short the preparation process should start and end with dividend vouchers.

Hopefully the dividend vouchers can be reconciled to the financial accounts.

Then HMRC inspector can soon be put at ease.

The DLA may give the game away if dividend process is complacent.

DLA in arrears for a year... Then Dividend entered in hindsight when accounts prepared after the year end..... But no BIK for borrowing returned on P11d.

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Replying to frankfx:
By johngroganjga
24th Jul 2018 08:01

frankfx wrote:

Dividend vouchers and minutes are part and parcel of company records and accounts.

Maybe they are, but they are not what this question is about. HMRC, we are told, are asking for details of the movements on the DLA, not for dividend vouchers and minutes.

frankfx wrote:

The dividend vouchers are used to prepare the self assessment return...not the accountants knowledge of the DLA.

Agreed where the accountant preparing the shareholder's tax return did not prepare the accounts of the company paying the dividends. Otherwise, dividend vouchers are not going to tell an accountant anything they do not already know.

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By johngroganjga
24th Jul 2018 07:52

The DLA is the interface between the company and your client. By thinking of the details of the entries made to it as being part of the company’s internal records you are missing the fact that those details are just as much part of your client’s personal financial records. There is nothing for you to argue.

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By ohgoodgodno
24th Jul 2018 08:57

i think the key issue is that the HMRC officer doesn't seem to understand company accounts and what dividends are included and so cant agree this to the SATR

being stubborn and not providing the DLA is only going to drag this matter out, assuming there is nothing to hide, provide the DLA and get the matter put to bed as soon as possible. you can then make a complaint about the officer and their training / skill

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By chicken farmer
24th Jul 2018 10:11

You say the enquiry is into the client's 2013-14 return. If that return was issued in April 14 and submitted by the due date then the enquiry window closed on 31 January 2016 at the latest so a s. 9A enquiry is not valid and the Revenue should be issuing a discovery assessment instead.

Or is there something you have not told us....?

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