Most of us will from time to time implement some tax planning on behalf of a client which requires some paperwork to support the actions which have been taken.
For example the incorporation of a business requires an issue of shares ,if appropriate a changing of the name of a PAYE scheme, the setting up of a company bank account and new headed notepaper and invoice books to reflect the change to a company. A transfer of a property from a company to a director requires a notification to Land Registry.
I have come across a number of cases recently where transactions or tax planning have taken place but there has been no paperwork to evidence/support what has happened. This can of course create significant problems with HMRC who will understandably take the view that in the absence of paperwork the transaction/planning should be ignored.
Unexpected tax liabilities can arise – in the case of a property transferred to a director with no supporting paperwork HMRC would look to charge a benefit in kind on the director using the property as his residence as the property would still be legally owned by the company.
A recent tribunal case – Terrance Raine v HMRC concerned the setting up of a company where the shares were intended to be allotted equally between Raine and his partner. The paperwork was never completed and the annual return of the company showed Raine as the sole shareholder.
Dividends were paid over a number of years and Raine declared 50% of them on his tax return. HMRC spotted the problem and quite reasonably contended that in accordance with the annual returns which had been signed by Raine, 100% of the dividends should be assessed on him. Assessments for 2005-6 to 2010-11 were raised and penalties were applied for careless behaviour.
Raine appealed but lost at Tribunal on the grounds that he must have realised that all of the shares were in his name because he signed the annual return showing that as a fact.
This perfectly illustrates the importance of following through any planning to ensure that all paperwork required has been completed and filed with the appropriate authority. It is sometimes possible to rectify this kind of error retrospectively but HMRC does reasonably require very strong evidence that the original intention was different to the actual outcome and this argument can only be used under particular circumstances.