Director shareholders whose interim dividends were reclassified as salary prior to the company's liquidation were not liable to tax or NICs not deducted, as on the facts there was no obligation for the company to have made the deductions.
The appellants (Mr and Mrs Jones) were directors and shareholders of a company which went into insolvent liquidation in February 2009.
They had previously received interim and final dividends from the company, together with modest directors’ fees. However, the company began suffering financial difficulties, and following professional advice in January 2009, sums originally received by the appellants by way of dividends were ‘reclassified’ as salary subject to PAYE and National Insurance contributions (NICs).
Following the company's insolvency, HM Revenue and Customs (HMRC) investigated whether there had been a wilful failure to deduct tax and
