UK Capital from a Company Account into Private Account - Huge Tax Bill!!!

[Kingfisher]

About six or seven years ago I sold a property owned by my Limited Company. Sadly having taken over from the death of my husband I had no business acumen. I transferred unwittingly a substantial sum into savings accounts of my own in order I thought sensibly to gain some interest. My accountant did not comment on this when I submitted my end of year accounts, simply that I would pay £10,000 in tax. Very shocked at the time but obviously paid my dues.
However eighteen months ago roughly I sold a further property, the last remaining in the Limited Company, once again transferring a large amount into investments. A few weeks ago I had meeting with my Account, the colleague of my original Accountant, who sadly has retired due to dementia. He was horrified to discover the sums removed from the Limited Company informing me that the investments should have been in the Limited Company name. I couldn't believe what I was hearing, as my previous retired Accountant had not mentioned this error on my part when I sold the previous property. I'm now informed by the new Accountant (of the same firm) that the withdrawals will be submitted as not quite sure now, but loans or dividends! Head reeling over all this so now sure exactly which. Anyhow looks like I will have to pay around £25,000-£30,000 in tax. Has anyone any idea if I could appeal to Inland Revenue? Probably not as I'm sure there's no compassion these.
Thank you if anyone can advise.

 

[Becky]

Unfortunately, if you permanently withdraw money from a company you have to pay tax on it.

If your intention was to take the money out as a loan, then as long as you repay it before 9 months after the end of the comany's accounting period then there is no charge. If you still have the loan after this point, you have to pay 25% of the loan in corporation tax to HMRC, although this can be reclaimed once the loan is repaid to the company. This is called 'loans to participators'. In addition, you should pay interest to the company at a market rate, otherwise you will give rise to an employee benefit (subject to PAYE/NIC).

You can read about it here: https://www.gov.uk/directors-loans/you-owe-your-company-money

If the withdrawal was not a loan, then unfortunately you have to pay tax on it, and there is no way around that.

Sounds like your first advisor was just dealing with what you did rather than giving you actual planning advice, which isn't great. However, appealing to HMRC on the grounds that you do not know what you are doing will definitely not win you any favours with them.

 

[Kingfisher]

I invested £95,240 on 20th October 2015 unwittingly in my name, as detailed above, not in the Company name.

On 9th April 2016 I invested a further £15,240 in my ISA topping up the £15,240 incorporated in the figure above of £95,240, making a total investment of £110,480, all as stated in my name.

When informed by my Accountant that his was a dreadful mistake, I refunded the whole amount of £110,480 back into my Company account on 28th and 30th November 2016.

When discussing the accounts with my Accountant in February 2016 I was informed I could withdraw up to £31,785 from the business as a dividend. I withdrew approximately £25,000-£26,000 for my personal use - in fact less than I could have. Unfortunately the £110,480 has been added to that sum of £25,000-£26,000 which is my downfall and incurring the enormous tax liability. Am I right in assuming from the above comment that this should not be the case as I credited the Company account with the full amount of £110,480? I did not mention the investments to my Accountant in February 2016 as I had no idea would be a problem. As mentioned I had done exactly the same thing previously and my Accountant at that time did not comment on this.

Thank you for your comments and yes, can imagine HMRC would not appreciate my declaring lack of knowledge. However, should I still contact HMRC and discuss the situation - would that be to my advantage at all?

 

[Becky]

If it was a loan then it should not be recorded as income. I think you need to discuss all transactions in full with your accountant to make sure that everything is treated correctly. When is your company year end?

I wouldn't discuss this with HMRC unless you have already submitted a tax return with incorrect information.