I have a CIS client who's income is under investigation for 09/10.
On going back and checking, HMRC's figures are correct. He did not declare all income in year under investigation as he'd not received CIS slips from one customer covering two months and misfiled another. He did not provide me with all bank statements so I did not spot missing income. I have a file note from the time stating that I'd asked the client about the gap and they said it was connected to a period out of work. (He was out of work for a month to 6 weeks but the gap period was four months).
CIS deductions were made and paid over on the undeclared income so the loss relates to the class 4 NICs, approx £750.
Our planned response is that he made a genuine error despite taking reasonable care, he'd misfiled documents in the wrong tax year and when asked had thought the period related to when he was out of work. The details are that we completed the previous year's tax return in Sept and the underdeclaration relates to the periods prior to September as he had filed them with the old year. He also moved house in that period so was in an transitional state. My client is a genuine honest man who's made a mistake and is keen to do things properly.
Firstly, do you agree that the client took reasonable care?
Secondly, HMRC's letter has asked for a phone response. Given the straightforward facts of the case I am tempted to phone, get the facts agreed, try to negociate a zero penalty re reasonable care and get it closed asap. (The client's expenses record keeping is a bit iffy and requires calculations from me with regard to MOTs re mileage etc, and we really don't want HMRC enquiring into that part.)
Does anyone have thoughts about giving a telephone response? My initial thought was that the worst likely outcome is that HMRC doesn't agree the client took reasonable care and so gives a 15% penalty for a prompted but full & helpful disclosure, so £110 odd which would not be worth arguing about considering the amount. Can they start asking about other aspects of his record keeping or are they limited to income as that is what is under investigation?
Thanks for your help
Replies (5)
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I'd be inclined to give a written response - I've seen too many tax onspectors lie about what was said on the phone (and proven it with tapes of the conversations).
Put it in writing and get it sent to them.
Of course the minute you admit that there was an error they will see that as a green light to start fishing so be prepared for a lot of hassle over very little. Typical HMRC - have a go at the little guy and let the real cheats get away with it.
No Harm
I had a similar situation couple of months ago where CIS income declared on client's tax return was lower than hmrc record, I spoke to client about this and he confirm that to be the case. Immediately picked the phone up and spoke to the inspector in charge and agreed the revised income. revised calculation sent and case closed simples!!
Cannot hurt
but taking on board what CD said, just make sure you record the telcon with HMIT.
They are now under pressure to get enquiries dealt with asap and dealing with simple ones on the 'phone is to be welcomed.
Telephone
I had two of these last year and agreed both on the phone. It's simple they havent given you all the vouchers (I always ask where there are obvious gaps). The bank statement would fill in gaps but if they're unorganised what the chances of getting a full twelve months bank statements out of them?
The first case there was no mention of penalties.
The second case they did mention penalties. I said I had another one of these and there were no penalties. Then HMRC said that there would be no penalties on this occasion however if there were further problems with the same client there would be penalties in future.