Linked HMRC enquiries into a company and its director

An enquiry into a company tax return does not automatically put the director’s personal return under enquiry, so HMRC opens a separate enquiry into the director when it needs to look at their private finances or sees risks in their own return. HMRC’s guidance requires the officer handling the company to control both enquiries and keep them moving together. What is found in one usually changes the other: money taken out of a company can be taxed as extra company profit with a loan charge, or as the director’s employment income.

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Why does HMRC look at the director as well as the company?

In an owner managed company the line between company money and the director’s money is often thin. HMRC’s Enquiry Manual at EM8205 says that to check a company tax return is complete and correct, information about the directors’ personal financial and tax affairs is often needed, and that officers should consider extending enquiries to the directors’ returns when a company return is taken up for full enquiry. Typical triggers are unexplained cash, a director’s lifestyle that looks out of step with their declared income, an overdrawn loan account, or personal spending put through the business.

EM8210 says that where a director’s return presents clear risks of its own, HMRC will normally open a linked enquiry, with a separate notice and factsheet CC/FS1 for each director. That enquiry must cover all the risks in the director’s return, not only those connected with the company. The difference between a narrow and a wide enquiry is explained in aspect versus full enquiries.

Is the director’s return automatically under enquiry?

No. EM8205 states that there is no direct legal link between a company tax return and the returns of its directors or of non director participators in a close company. A notice to the company under paragraph 24 of Schedule 18 to the Finance Act 1998 does not open the director’s return; HMRC must give a separate notice under section 9A of the Taxes Management Act 1970 (TMA 1970). This is the opposite of the partnership rule, where a single notice opens every partner’s return (see enquiries into partnership returns).

Each notice has its own time limit. Under section 9A(2) and paragraph 24(2), a return filed on time can be opened up to 12 months after delivery, with later deadlines for late or amended returns. Because a director’s personal return and the company’s return are usually filed at different times, one window may have closed while the other is still open. In that case HMRC may still be able to obtain the director’s documents by a third party notice, or rely on its discovery powers.

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Who runs the two enquiries?

EM8205 makes the officer responsible for the company return the case owner who coordinates the compliance work. EM8207 says an officer should neither open nor conclude an enquiry into a director’s return for personal omissions without that case owner’s clearance, because settling with one director could weaken HMRC’s case against the company. EM8210 tells the company case owner to take ownership of linked director enquiries, including any already open.

EM1813 requires officers who take up linked enquiries, such as into a company and its directors, to maintain parallel progress in each. In practice the company and director often share an adviser and correspondence may be addressed to both, but EM8211 reminds officers to protect confidentiality, particularly where different agents act for the company and the director.

How does HMRC get the director’s private bank statements?

A company cannot be made to produce a director’s personal bank statements, because they are not the company’s documents. EM8211 sets out the order HMRC follows:

ask the company to ask the director to provide them voluntarily, making clear the request is voluntary;
if an enquiry into the director’s return is open, issue a taxpayer notice to the director under paragraph 1 of Schedule 36 to the Finance Act 2008;
open an enquiry into the director’s return if it has clear risks that justify seeing the statements;
otherwise, issue a third party notice to the director under paragraph 2 of Schedule 36 to obtain documents relevant to the company’s liability.

Formal notices are explained in Schedule 36 information notices, and the questions HMRC asks about household spending in HMRC questions about private spending.

How do adjustments in one enquiry affect the other?

EM8601 divides problems into two kinds. Non extractive irregularities, such as overstated costs that simply reduce the tax bill without money leaving the company, are settled with the company alone. Extractive irregularities, where money or value has been taken out by or for the directors, can be taxed in one of two ways:

The company route. The money is treated as additional company profit charged to Corporation Tax, with the extractions treated as loans to the participators, which brings in the charge under section 455 of the Corporation Tax Act 2010 (see section 455 tax on directors’ loans).
The employment income route. The money is treated as undisclosed pay to the director, taxed on the director’s own return.

EM8605 says that where there is little evidence either way, HMRC’s preferred line is the company route, usually with a “joint and several” offer so that the directors share responsibility for payment. EM8610 explains that rewriting the director’s loan account can also create a beneficial loan charge under section 175 of the Income Tax (Earnings and Pensions) Act 2003, normally from the date an intention to repay can be shown, which is often when settlement terms are discussed. The mechanics of the loan account are covered in the director’s loan account.

Under EM8220, if the employment income route is taken, the closure notice for the director’s enquiry must include that income, with credit for tax the employer should have deducted unless HMRC has made a direction transferring liability to the employee. EM8220 also tells officers not to settle a director’s enquiry before a signed contract has been received from the company, as that could rule out recovering from the director instead.

Can the company or the director force one enquiry to close?

Each taxpayer has its own right to apply to the tribunal for a direction that HMRC issue a closure notice: the director under section 28A(4) of TMA 1970 and the company under paragraph 33 of Schedule 18. In both cases the tribunal must give the direction unless HMRC shows reasonable grounds for not closing the enquiry. EM1995 says HMRC will explain, without breaching confidentiality, that the enquiries are interlinked and cannot be closed separately, and will argue this at the hearing. A direction on one return does not force HMRC to finish the other, although EM1995 says HMRC should take the changed circumstances into account. See HMRC closure notices.

What might a linked enquiry look like?

Illustration only. HMRC opens an enquiry into a restaurant company’s return because its gross profit rate is low. It also opens an enquiry into the director’s return after noticing that the director’s declared salary looks too small to fund a recent property purchase. The company is asked for its till records and the director, voluntarily, for personal bank statements. These show £25,000 of cash takings paid into the director’s own account. With no evidence the money was regular salary, HMRC proposes the company route: £25,000 of extra profit for Corporation Tax, the same sum debited to the director’s loan account with section 455 tax on the balance, and a joint offer from the company and director covering tax, interest and penalties. The director’s personal enquiry is closed only after the company has signed.

What mistakes do companies and directors make?

Treating the company enquiry as a company problem only, and not preparing the director for questions about private finances.
Handing over a director’s personal statements without the director understanding that this is voluntary at that stage.
Agreeing a settlement on one return without working out its effect on the other, for example a loan account charge or a benefit in kind.
Using different advisers for the company and the director who do not talk to each other.
Applying for closure of one enquiry without expecting HMRC to argue that the enquiries are linked.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.