Tax from the trenches: “I am conscious that this enquiry has, to some extent, got stalled in procedural matters”

Tax Enquiry Delay

There is no better feeling as a tax professional, than to let a client know that a long running tax enquiry has been brought to a conclusion. The feeling is even sweeter when the Inspector has been on what I can only describe as a “Grail-quest” to prove that the client has been in receipt of non-declared taxable income. Finally, after two years of madness, which started with a simple HMRC enquiry letter, the Inspector chose to back down and vacated estimated assessments to the value of around £350,000. Well I say “chose” to back down, I’m not sure he had any choice in the end. Essentially he, and I am sad to say his manager, had made such a pigs ear of the case in recent months that we had been forced to request an independent review of his decision to issue the estimated assessments. We also put the Inspector and his manager on notice that we would be making a formal complaint to HMRC.

For those of you who read my blogs, this might sound familiar as this case was first reported in my May 2017 blog. By way of reminder, the client allowed her personal and company’s affairs to fall behind. She was late in submitting returns and paying tax and had acquired some properties that in the absence of the company accounts and personal tax returns, it seemed she could not afford. When everything was brought up to date it was clear that the client had a substantial taxable income together with director’s loan account drawings from the company. The income was easily enough to cover the capital investment, and we had previously provided a detailed review of the client’s bankings some months before.

The Inspector really should have gone away at this point, but like a wasp at a picnic he just wouldn’t budge. Every letter was met with a fresh demand for information and the inclusion of additional years. Then we had discovery enquiries, then we had a letter from the Inspector’s manager essentially accusing our client of activities bordering on fraud. This was the “enough is enough” moment. The gloves most definitely came off. During the complaint and review process, I had a call from the Inspector who suggested a meeting would be a good way to progress matters, “so that he could explain where he was coming from”. I reminded him that my letter included detailed technical analysis as to why his assessments were invalid, why his discovery enquiries were invalid, why recent information requests into previous untouched years were invalid, and that recent letters clearly showed that the Inspector had lost any sense of objectivity. I am not often rude on the phone but I was quite blunt in saying that I wasn’t interested in seeing where the Inspector was coming from and that I wanted the case reviewed independently as it should be pretty clear to anyone that this case was more of a personal mission rather than a regular enquiry. Two days after the call I received a letter attached to an email confirming the case was going to be closed.
But what is the point of this blog, I hear you say, other than to celebrate a deserved victory. The answer lies in one of the many ineloquent phrases used by the Inspector in his letter. I have to say the Inspector’s letter is little more than three pages of self-serving petulance, explaining why he doesn’t think his actions were unreasonable. In terms of that bothersome thing called the law, he tacitly admits that the enquiry has “got stalled in procedural matters”. And herein lies today’s lesson.

Tax laws exist to promote compliance by taxpayers and to impose penalties in cases of non-compliance. These laws are necessary for all number of reasons. For me personally, I am 100% compliant with my tax affairs so I don’t think it is particularly fair that anyone else should get away with non-filing or late payment. But tax laws also exist for HMRC as well. There are rules governing when HMRC can ask questions into earlier years and how far back they can raise assessments. HMRC Inspectors must give consideration as to what is a reasonable and proportionate request together with a taxpayer’s behaviours and what information might have previously been disclosed.

On more than one occasion I have heard people say that a HMRC enquiry letter must be correct, because the inspectors that wrote the letters are technically trained and they wouldn’t ask for anything they’re not entitled to. I can say categorically this is rubbish. This is not to cast aspersions on the vast majority of HMRC technical staff who do a good job and, more importantly, play fair. But I have seen my fair share of cases in the last few years where the Inspector’s requests range from the incorrect right up to ludicrous. I would also be lying if I said that there wasn’t the odd occasion when, as a tax inspector, I asked for something that strictly speaking I knew I might not be entitled to. The “procedural matters” which got “stalled” in this case are better described as tax laws that should have been adhered to. I must also make the point that this isn’t a case of the client getting off on a technicality, like a drug dealer who hasn’t been read his rights. In this case the client is 100% innocent and didn’t have the extra sources of income that HMRC believed.

I have a healthy regard for HMRC together with the majority of its staff and the function it serves. I also have a healthy dislike for Inspectors who disregard the rules and attempt to bully or intimidate people with nasty letters and huge assessments. The lesson for today has to be that if you get a HMRC enquiry letter, for goodness sake don’t just go along with it. Get it checked by a competent tax professional before providing the Inspector with all your bank statements and a list of all your worldwide assets! It’s quite possible the HMRC enquiry letter is fine, but sometimes HMRC overstep the mark and when this happens you are more than within your right to challenge it.

If you have received a HMRC enquiry letter and would like some advice, contact me at neill.staff@raffingers.co.uk.
Or, if you have enjoyed this blog so much that you would like to read more, see my previous blogs:
“Tax Aversion”
“It’s not right and it’s not fair…..”