Business bank accounts – don’t bet against the taxman

Business bank accounts and personal bank accounts – don’t get them muddled

Are you a director of a limited company? If so, you probably don’t need telling that transferring large sums of money from your business bank accounts to betting companies will make the taxman raise his eyebrows.

It’s a lesson that was learned by a certain Mr Bhapinder Matharu, owner and director of Matharu Delivery Service Ltd back in 2019. According to Accountancy Daily, Mr Matharu’s affairs were in rather a mess, leading HMRC to launch an investigation.

The taxman rolled up his sleeves after taking a close look at Mr Matharu’s self-assessment tax return.

Believing that it may have been inaccurate, HMRC put Matharu Delivery Service Ltd under the microscope. Seeing that there were significant withdrawals and payments from the director’s loan account, investigators asked for a complete breakdown of the account, including the date, amount and description of every transaction.

After some time, Mr Matharu’s accountant submitted an analysis of the loan account.

It wasn’t satisfactory.

For some reason, the accountant had ‘averaged out’ various payments over the financial year. To take one example, Matharu’s salary was credited to the loan account at £725 every month. In reality it had been paid unpredictably as part of bigger transactions. The monthly position of the director’s loan account was, therefore, consistently inaccurate.

When it comes to organising your bank accounts – don’t bet against the taxman

Other discrepancies included a £40,060 payment of ‘wages’ from the company, even though Mr Matharu’s P60 listed a salary of £8,786.76. More oddities included a payment of £158,000 to Betfred (and a payment from the same company of £153,360). An additional £26,000 was paid to online casino firm 32Red.

HMRC was not amused, so it issued an information notice, requiring Mr Matharu to produce all of his private bank and building society accounts. He appealed against the notice, arguing that the taxman had no reason to believe his personal tax return was wrong. He also made the case that small businesses quite normally refer to director withdrawals as ‘wages’.

The appeal failed, landing Mr Matharu in a whole lot of trouble. Something tells us that life is going to get expensive for him!

So why are we sharing this story with you?

There are three, simple reasons:-

• Always, always resist the temptation to muddle up your business accounts and personal accounts. Spend your own money how you like, but make sure every penny within your company is properly accounted for. As the famous quote from The Godfather has it: “It’s not personal. It’s strictly business.”
• Choose a good accountant. If you have one who cuts corners, it can land you in a whole lot of very expensive trouble.
• Remember that you could be on the end of an HMRC investigation at any time, even if your accounts are pristine.

With regard to the last point, it’s wise to make sure you subscribe to our Tax Investigation Service.

This gives you cover of up to £100,000 of accountancy fees in the event of an HMRC enquiry – and ensures you have experienced accountants on hand to make the process as fast and painless as possible.

 Learn more about this tax investigation service here.

For more advice contact us here at THP Chartered Accountants where we would be happy to assist you with any queries you may have, with offices in Chelmsford, Sutton, Wanstead and Saffron Walden.