Penalty imposed for potential lost revenue

Mr M was the sole director and shareholder of Grangewood Ltd. By the end of the September 2015 accounting period the director’s loan account was overdrawn by £2.9m and the company had paid tax of £704 000.

For the accounting period ended 30 September 2016 Mr M withdrew a further £379 641 which gave rise to a tax charge of £103 472.

The accounts for that period showed Mr M had transferred an intangible asset valued at £4m to the company which brought the director’s loan account into credit. As a result the company claimed a repayment of the tax.

After an enquiry it transpired that the intangible asset was an option to buy shares and ultimately the taxpayers withdrew the repayment claim and submitted amended accounts and an amended return.

HMRC imposed a penalty against Grangewood for 52.5% of the potential lost revenue - the tax liability that...