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HMRC Loses Battle in £40m Dividend Payment Investigation

Published by Prerana
Published Date: May 16, 2024

HMRC recently investigated a property group as the company paid £40m in dividend payments following a decision by the First Tier Tribunal (FTT) on 16 February 2023. The case involves three company directors, who are brothers and the beneficiary of the dividend payments.

Despite HMRC’s best efforts, the Upper Tribunal did not rule in its favour, highlighting the complexities of tax investigations.

Why Did HMRC Investigate?

HMRC started an investigation into the three brothers who inherited the property company from their father, but their Self Assessment returns did not report them as beneficiaries of their father.

The Tax Years in question for two of the brothers were 2017/18, 2018/19, and 2019/20. The tax enquiries for one brother went on for eight years from Tax Year 2012/13 to 2019/20. The tax authority issued closure notices to the brothers based on Section 28A of the Taxes Management Act 1970 (TMA). The closure notice was a result of the decision of the First Tier Tribunal (FTT).

Furthermore, HMRC appealed against the decision of the FTT on accounts that the tribunal failed to apply the relevant legal principles in determining the closure notice applications.

The Tribunal’s Decision

The father and founder of the property group in question transferred all the shares of the company to a Bermuda-based company in 1999. Later, the shares were moved to a trust in Guernsey.

HMRC Investigation

Although there was no evidence as to who the beneficiary of the £40 million was, the HMRC investigating officer believed all three brothers were beneficiaries. So, the HMRC was accused of a fishing expedition on the FTT tribunal.

HMRC’s main argument at the Upper Tribunal was that the respondents refused to provide sufficient information about the beneficiary. But the Upper Tribunal’s judge said HMRC’s arguments were not appropriate and felt there was no reason to interfere with FTT’s decision.

So, HMRC’s appeal was rejected and the case was dismissed.

Conclusion

HMRC initiated an investigation on the group and its three owners due to insufficient information about the £40m dividend payment. Although the FTT rejected the investigation, leading HMRC to send a closure notice, HMRC further appealed FTT’s decision. Due to insufficient information and evidence on HMRC’s behalf, the Upper Tribunal rejected the appeal.

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