A recent tax tribunal has confirmed that company directors are always responsible for the finances of their company, and that this responsibility cannot be delegated to their accountant. In this case, Miss McCann was a director of a company and received employment income and dividends from it. She also had employment income from other sources and a small amount of untaxed bank interest.
HMRC opened an enquiry into Miss McCann’s tax return for the year 2016-17 as their information suggested that Miss McCann has not declared £13,029 employment income, £16.11 bank interest, and should have made a student loan payment. The total amount of additional tax due was £1,354.73.
Was reasonable care taken?
McCann argued that she took reasonable care in completing her tax return, and that she provided all of the information requested by her accountant. Whilst the judge did not dispute that she acted honestly and truthfully, it was not sufficient for Miss McCann to engage an agent and assume that the agent will get the tax return right. Miss McCann was the person who knew about the additional employment income, bank interest and student loan, so she should have checked that these were reflected in her tax return. The judge concluded that McCann failed to take reasonable care to avoid any inaccuracy in her tax return and that a penalty was properly due.
This case clearly illustrates that responsibility for filing accurate tax returns rests with the taxpayer, and that this responsibility cannot be delegated to an accountant or other trusted advisor. This might seem unfair given that taxpayers might feel unable to understand some financial complexities, however it is still their responsibility to take reasonable care.
In McCann’s case the full information was not given to her accountant to enable the tax return to be completed accurately, however it is unclear whether the accountant requested all the information. The case illustrates an important lesson for company directors, that they always have financial responsibility for their company and that they must take reasonable care in fulfilling this responsibility.