Hello

My first response would be that id the company is overdrawn by circa £19k through drawing excess dividends - this itself is an issue as they would be deemed 'illegal' dividends in that the company does not have sufficient distributable reserves to pay the dividends.

Your client will have to try and argue that at the point of drawing the dividend, they had management information which suggested there were sufficient profits to take the dividend and the reason for the deficit on the balance sheet is due to unforeseen circumstances.

Being an 'illegal dividend' - technically it becomes a debtor to the company as the dividend should be repaid. HMRC will be all over this looking to treat it as salary or S419 tax.

Regarding the S660 issue - this is an interesting one.

My view would be to make the partner a director, this certainly adds more weight to the arguement

As a director she has various powers to sign off accounts, Vat returns (which I appreciate she can do as secretary) and has all the risks of a director.

I also take the view that her 50% shareholding is an investment. The fact that the return on the investment is quite high is based on the fact it is a significant risk she is taking. If the company went under, she would lose her shareholding.

Overall, I have found HMRC struggle to challange the S660 as it is such a grey area and have seen cases won and lost on HMRC's point. My main concern at this stage would be that the company is insolvent and dividends are still being drawn