Technical Queries & Spring Tax Update

In this episode, Mark Morton discusses HMRC’s increasing focus on directors’ loan accounts and the practical challenges arising from recent compliance checks. Mark shares a real client case, highlighting how misunderstandings within HMRC can lead to unnecessary pressure and how a robust technical response can turn a proposed £250,000 settlement into just £700.

He also previews key themes from our upcoming Spring Tax Update and explains how our TQ Technical Support service can help firms navigate complex HMRC enquiries with confidence.

Whether you're dealing with overdrawn loan accounts, benefits‑in‑kind queries, or need support with tricky compliance issues, this episode offers insight, reassurance and practical advice.

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

Hello everybody. It's Mark Morton here. Looking the night's drawing out. Just looking out the window. The night's drawing out a little bit, even though I can't see it for the pouring rain yet again. But anyway welcome to the middle of February in the uk. Just a little bit of a catch up really regarding HMRC and directors loan accounts. 

There's been a lot of messaging from the revenue over the last sort of six months or so that they are looking at various aspects of directors loan accounts whether that's writing off position in liquidation. Interestingly, I saw something recently saying we are not sure if you've repaid it within. 

Nine months, which is pretty much about as basic as it can get. So a lot of messaging coming from the revenue regarding director's loan accounts. It's interesting if I cast my mind back to when I started in HMRC, the Inland revenue, I should say, not HMRC. Let's be clear I started work for a quality organisation once upon a time. 

But that was where I cut my teeth, looking at loan accounts and timing and was the dividend actually paid at that stage and whatever else it's amazing to think 30 odd years later. That this is now high on the list of the revenues sort of areas of concern, but probably comes back to this real main point ultimately that the revenue have done very little compliance on our MBS for many years. 

So a lot of those issues are discussed in our forthcoming spring tax update. One thing I just wanted to mention was some help I've been giving to a client. In respect of one of the issues relating to directors loan accounts. And just to summarise briefly the client, IE firm of accountants got in touch with us last year and they'd had a long running check, let's call it, not an inquiry, but check from the payers. 

You earn side of the revenue actually on the issue of the benefits in kind position in relation to directors loan accounts. So. I think ultimately all that's really happening is HMRC are saying we can see the corporate position. You're overdrawn at the year end. Where's the P 11 D? Do does two and two equal four. 

So in that sense, there was a legitimate question because a P 11 D hadn't been submitted for this particular client. However, to cut a long story short. The client and the firm concerned, were happy that interest had been charged on that loan, and in fact, the interest had been paid as well. And you'll note my words. 

I, I think there is an aspect of charging interest and paying interest are two slightly different things. But after some months of, correspondence, let's say nicely with HMRC. They were in a position where the HMRC officer was just saying, well, I think I've got you over a barrel. I want a quarter of a million pound settlement of tax plea. 

Primarily because the overdrawn amounts were large each year. When I looked at it you can debate the nuances of. P 11 D submission and so on and so forth. But I was happy with the mechanics of what the client had done. I think technically you might have been able to say, well, you've got an incorrect P 11 D, but the net result was there was no benefit. 

I. We went through a process of writing nice letters, nasty letters, trying to explain the legislation to the particular HMRC officer, and it was really interesting at a number of stages, I asked the HMRC official for their technical position. That was never given. What was given was a number of threats to assess and do lots of nasty things to us, to which mind was, well, feel free 'cause we'll just appeal. 

And bear in mind you can't assess all those years 'cause you're now outta time. 'cause you've been messing around with this check for so many, for so many months. But. The net result of all of this was I just said, at the end of the day, I'm terribly sorry. We're not prepared to deal with you anymore. 

And I think in accordance with what used to be known as the taxpayer's charter, the deal is you play fair by us and I'll play fair by you. That does not involve public servants threatening you and, whatever else. So, I merely said, we're not prepared to deal with you anymore. 

You've got a couple of options, shut it down. Or I want contact with your manager. And to be fair, the manager ultimately had a meeting with myself and the accountants concerned. And I was saying to him in respect of your officer, what's the oversight? But fundamentally, do you agree with her or agree with us? 

At that point, although the guy was very nice, he said, well, I've now referred this issue to a technical specialist in the revenue, which seemed to infer that for well over a year. The HMRC officer did not understand the law and her manager. A was not overseeing her properly, but b did not understand the law either and could not make a decision and it had to be referred to a third person. 

Quite amazing. To cut a long story short, there wasn't a quarter of a million pound settlement. There was a 700 quid settlement. So on that happy note, I would refer you to our technical support. Help line come service. There is no charge for registration but you can dip in and dip out when things get a little bit murky and if you are inclined, get a little bit of help in dealing with whoever it may be or whatever the issue may be. 

So we are here to help. There is a registration process, but there's no charge for that. So feel free to sign up and then you can use is when you choose to, and you just pay as you go for that service. But yeah, quite interesting dealings with the revenue at the moment. So, take care everybody, and I'll catch up with you again soon on the next Mark Morton podcast. 

Take care everyone. Bye