A recent tax case has highlighted the need to ensure company affairs and personal affairs are clearly separated. In the case a locum was working for the NHS. He thought he was operating through a limited company, and prepared company accounts and tax returns accordingly. He ensured the corporation tax was paid and paid his personal tax on salary and dividends from the company. However, he had not set up a company bank account or arranged for his contracts to be in the name of the company.
HMRC argued that for the past ten years the company had not had any income, and in fact all of the income was taxable on the Locum personally. Furthermore HMRC argued that the Locum had deliberately evaded tax by preparing company accounts etc. The First Tier Tribunal agreed with HMRC and the Locum now has a bill of £500,000 for additional tax, national insurance, penalties and interest.
Check through our factsheet “Running a Limited Company” for some tips on ensuring your company is operating correctly.