Tax from the trenches: “It's not right and it's not fair…..”

It would be tempting to go for the immediate joke made semi-famous by Spike Milligan. “It’s not right and it’s not fair” Response; “What’s not right and not fair?” Answer; Joe Louis’s left leg. It’s moderately funny to those who have a Spike’s sense of humour and, more importantly, know that Joe Louis was a famous black boxer, but I digress. The statement came from a highly agitated and emotional client who had just received a series of assessments totalling £340,000 from HMRC based on “perceived shortfalls” in her income. Having worked alongside the client for around two years now I had to agree that the assessments, and the Inspector’s approach, was indeed not right and very unfair.

When setting out on my blog writing escapade, I decided at an early stage that I wouldn’t use the articles to sound off at HMRC for all its mistakes. As I have mentioned in other articles and blogs, the compliance and enquiry side of HMRC is staffed in the main by intelligent and down to earth people who are simply doing a job. For anyone who berates the tax enquiry system, let me question where we would be without it. Most people don’t like paying tax, even if we can see the greater good and hope that the politicians spend it wisely. Without the knowledge the tax system is being policed effectively, I wonder just how many people could be trusted to make an accurate return of their income. Admittedly, as a former tax inspector my views might be a little biased, but so long as HMRC use their powers reasonably, and concentrate their efforts in the right area, then I have no problem.

But therein lays the rub. What happens when a taxpayer comes under an oppressive degree of scrutiny by an Inspector who simply can’t seem to understand what is being presented to them and is unable to perceive a result to their case that is anything other than tax fraud. The answer is a very upset client, the issue of discovery enquiries and assessments, questions dating back over many years without any reasonable basis of discovery and a cavalier approach not seen since the charge of the light brigade.

My client’s sin in this matter, for indeed there is an element of sin, was that she allowed her company’s affairs to fall behind. She was also late in submitting a few years tax returns and paying corporation tax. In the middle of this period she acquired a number of properties without the visible means to do so. Given that HMRC effectively have a direct link into Land Registry transactions, it was almost a forgone certainty that HMRC would enquire at some stage. Enquire they did, with notices into in-date Self Assessment years and the most recent in-date company accounts. As part of the enquiry process, we prepared a report of the client’s taxable and non-taxable income over a number of years showing how the client had sufficient income to acquire the properties. We also worked with the client to bring her tax returns, P11d’s and the company’s accounts up to date. The client paid the outstanding corporation tax and late payment penalties, and joined the prestigious “Up to date with everything” tax club. Or so she thought. Our fiend the Inspector was not ready to go away just yet.

Now, if there is anyone reading this who is technically minded in terms of tax, you will already be shaking your head and thinking in terms of the time limits for normal enquiries, discovery provisions, and behaviours in terms of how this affects the earlier years assessments. These thoughts struck me too, to the point that they have been pointed out to the HMRC Inspector on several occasions now. None of the letters have received a meaningful response. The last letter took the Inspector four months (I kid you not) to respond to, and basically reiterated that HMRC needed information going back to 2010, and asked for “new” information for 2016, but without the issue of a legal enquiry notice.

So how do you deal with a case like this, where the case office has seemingly lost all sense of objectivity? Well the first step is to get the decision to raise assessments independently reviewed by an officer not connected with the case. We have requested a review and have prepared a list of the technical and legal deficiencies in the case as we see them, together with a list of the technical issues that we believe need to be addressed. If the matter is not resolved by review, the next stage will be to submit the case directly to the Board of HMRC as an official complaint and claim for compensation. These aren’t actions that are taken lightly, in fact it’s something I hate doing, but lest we forget that taxpayers have rights too. I’ll keep you updated as things progress in the coming months.

To balance the above bad experience with HMRC, I have to report on a really enjoyable chat I had with another HMRC officer. A gentleman I can best describe as “Old School”. Very personable, certainly not a push-over, very pragmatic and entirely reasonable. We had been working a case together for a short while after he inherited the enquiry from a colleague who, shall we say, had taken something of an aggressive stance on our client’s affairs. Like a true professional, the officer didn’t criticise his predecessor, but he made it quite clear that he just needed something to persuade his manager to close the case as he doubted there was much in it. Suffice to say we were able to get some background information and the case was duly closed.

“Nice dealing with you” he said down the phone in a jovial way. “I’m sure there’s one or two bits wrong but nothing major”. He was exactly right. A few times when cigarettes and chocolate had been included on the petrol bills and the mileage records weren’t exactly the best. We promised to look at tightening up the records going forward and HMRC can focus their attention somewhere where it might just generate some real cash……….

If you would like any tax support or advice you can contact me at neill.staff@raffingers.co.uk.