Overview Of Director Duty To Minimise Company Tax
Do Directors have a duty to minimise company tax? Well, Directors have a duty to promote the success of their company. This is an obligation that arises under Section 172 of the Companies Act 2006.
Seeking to make a company successful inevitably suggests it should aim to be profitable but a notable factor aligned with paying tax is that it is an activity that directly sprouts from profitability.
Director Fiduciary Duty
Directors have fiduciary duties to safeguard the company’s property and ensure that it is not frittered away on expenditure that does not benefit the company. That means Directors appear under an obligation not to volunteer or donate money to HMRC. A concept largely unheard of given HMRC does not appear to be viewed as an organisation with charitable status in any event.
Companies can make charitable donations but there is no suggestion doing so via HMRC would meet the relevant criteria. Ordinarily, if a company gives to charity it pays less corporation tax. However, imagine overpaying HMRC tax and claiming the extra as a tax deduction. This does not appear to work because a company would not appear to get tax relief from overpaying HMRC.
Tax Avoidance Duty?
There is no evidence of any tax avoidance duty of a company Director. A company Director has a duty to comply with tax legislation in good faith and not to seek to avoid it.
Indeed the evidence is the other way in that attempting to avoid tax is an action contrary to Directorial duty. For example only, a common route for a Director to be disqualified or subject to disqualification proceedings is having engaged in conduct that involves Unfair Treatment Of The Crown as confirmed by Commentary – Insolvency Service Enforcement Outcomes 2021/22 (Updated 22 April 2022).
The most common allegation was in relation to Unfair treatment of the Crown (which usually refers to HM Revenue and Customs (HMRC)), which was associated with 37% of director disqualifications in 2021/22. Unfair treatment of the Crown can range from cases where a director had made a conscious decision to pay other creditors and not HMRC, to cases where a director has defrauded or attempted to defraud HMRC. This has been by far the most common allegation made since comparable records began in 2011/12.
Further, Schedule 1 of the Company Directors Disqualfiication Act 1986 incorporates details of types of conduct contrary to Director Duties and deemed unfit when a Court considers disqualfication. One such relevant category is:
The extent to which the person was responsible for the causes of any material contravention of regulations.
It appears entirely appropriate for a company Director to seek to minimise their taxes but not necessarily do so through involving tax avoidance schemes that introduce transactions with no other purpose or function other than the avoidance of tax. Such schemes may well not be in the best interests of a company.
Tax avoidance may not necessarily be wholly consistent with attempting to organise one’s tax affairs to minimise tax but might be looking to ‘avoid’ it altogether. Tax reliefs exist to incentivise certain conduct but generally not to enable companies to pay £0 in tax when they make profits and gains.
