Disastrous dividends

I have recently attended a pay as you earn compliance enquiry on behalf of a limited company client.

One of the issues that arose was that the director votes himself a dividend every quarter.

At the start of the year at 1 April the balance on the director’s current account is £nil. The director then draws £10 000 every month and after three months the £30 000 debit is wiped out by a quarterly dividend of £30 000.

The same thing applies for each of the following quarters throughout the year.

The Inspector of Taxes now wants to tax the monthly drawings as a loan to the director for each month that a dividend is not credited.

He is saying that the overdrawn loan account balance should have been declared on a form P11D and a benefit in kind is due on the benefit...