HMRC investigate illegal loans and dividends

A partner at the firm reports that of the last ten cases of insolvency he has dealt with, eight have led to HMRC investigations into illegal activities. He believes this increase could have been triggered by the increase to 50% in the highest rate of income tax at the start of the new tax year.

Directors paying themselves dividends isn't a problem in itself but it becomes an illegal activity if a company does not have enough accumulated profits to cover the payment.

The Revenue is generally one of the largest unsecured creditors when a business becomes insolvent and they are now so worried by the trend that they are requesting insolvency practitioners to look specifically for this problem.

The recent credit crisis has caused a small amount of company directors and owners to take illegal dividends or loans to finance the lifestyle they have come to expect but can no longer afford. HMRC would like to see the offenders banned and they intend to pursue them through the courts for as much money as possible.

Earlier this year, the Insolvency Service released figures showing that 2,169 directors of companies that had gone insolvent faced disqualification proceedings in the 12 months up to March 31st this year. That's an increase of 17% on the previous year.

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