Proportion of dividend held in blocked account was not taxable

The taxpayers were voted dividends from the company of which they were the sole shareholders. An agreement with a bank which had provided loans and financial products to the company limited the profits which could be extracted from the company by the taxpayers. Any amounts exceeding that amount would not be paid but would instead be credited to a blocked account and held in abeyance ‘until further notice’.

It was therefore agreed that a proportion of the dividends paid to the taxpayers would be withheld under the terms of the agreement with the bank and paid into ‘blocked directors’ accounts’ to which they did not have access.

HMRC contended that crediting the blocked directors’ accounts represented payment of the dividends and raised discovery assessments.

The taxpayers appealed.

The First-tier Tribunal found it was clear from the agreement that the taxpayers had no immediate right to enforce the blocked part of the dividend...