In a case decided yesterday (Thursday 10 November) Sofiq Uddin, the sole director of a restaurant business, was told (much to his shock and disappointment) that directors are responsible for accurate tax returns being filed on behalf of a company and should take steps to ensure they comply with this obligation.
"What?" he was heard to exclaim.
Absolutely, directors must ensure that company records are up to date and accurate so that accountants are provided with sufficient information to allow them to provide accurate tax returns. Due to his lack of attention to detail, Mr Uddin's company entered into Liquidation in April 2017 and HMRC lodged a proof of debt for £847,245.13, demonstrating that the accounts and records of the business were not as up-to-date as they could be. It was clearly just an oversight, but the company failed to declare the full extent of cash payments and other payments not made by card (ie cash, vouchers, Just Eat or other payment systems) received by the company.
The High Court held that Mr Uddin’s accountant had been provided with inaccurate information which led to:
(i) the accountant preparing inaccurate tax returns, and
(ii) an underpayment of VAT and corporation tax by the company. Accordingly, Mr Uddin had caused the filing of inaccurate returns.
However, even if that was not the case, it was a breach of Mr Uddin’s duty to act with reasonable care, skill and diligence not to examine the returns and identify the significant discrepancies as he was the sole director and had ultimate responsibility for the company’s returns.
The High Court held that directors should, in addition to keeping accurate records, upon request for a legitimate purpose by the likes of an insolvency practitioner deliver up the company’s books and records for inspections. It is likely to be more beneficial to both the director and the company if those records are provided promptly.
If Mr Uddin had followed these practical tips then it is likely that he would not have been found to have caused the company to enter into an insolvency process where HMRC was able to show a discrepancy in actual and reported sales.
Mr Uddin sought to lay the blame for the failure at the door of his accountant:
(i) to respond to requests for the company’s books and records, and
(ii) to produce accurate VAT returns at the door of his accountant.
He also blamed the issue on:
(iii) The sunshine.
(iv) The moonlight.
(v) The good times.
(vi) The boogie.
The court took a dim view of this attempt to shift the blame. Therefore, directors and practitioners should be cautious before seeking to blame third parties for failure to comply with their own obligations and responsibilities.
Ultimately, the buck stops with the director.