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HMRC ignore disclosure

HMRC ignore disclosure

Last year it came to light that a client had omitted to include a chargeable gain on an earlier year Return.

A disclosure was made to HMRC & a computation of the outstanding liability was provided.

HMRC responded to acknowledge receipt of the computation but claimed to have misplaced the covering letter.  A copy of the letter was sent.

HMRC have taken no action since and as the client has not been asked to pay anything he feels that he need take no further action.  Is this reasonable? Any other issues to consider? 

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24th Feb 2016 11:51

So your client acknowledges a liability but doesn't want to pay it because of HMRC's incompetence?

Tell your client to stop being petty and pay.

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24th Feb 2016 11:59

What if he's not sure what the liability is & has asked HMRC for their advice.  When they confirm what is due he will happily pay it?  Is that reasonable?

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24th Feb 2016 12:02

payment?

If HMRC haven't entered a CGT liablity on the taxpayer's a/c, then the payment will sit as an overpayment. It may even then be repaid. On the other hand, payment now would halt any backdated interest accruing further.

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26th Feb 2016 12:51

In hand ? Or forgotten ?

Wall1690 wrote:

What if he's not sure what the liability is & has asked HMRC for their advice.  When they confirm what is due he will happily pay it?  Is that reasonable?

It is so long as everyone knows it's in hand. 

It's not reasonable to hope they forget about it - even if they have done.

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24th Feb 2016 12:02

CIOT guidance

In the 2000 version of their guidance to members on professional conduct in relation to taxation the CIOT noted at paragraph 5.9 that

"Counsel have advised that if the Revenue fail to take action when an error by way of under assessment is clearly pointed out to them, a member has no further duty in the matter"

in the latest guidance effective from 24 February 2014 they note at paragraph 5.12 that:

"Where the client and member have complied with all their obligations under tax law (including providing sufficient and accurate information in a return as required) and HMRC has failed to take any necessary action to start an enquiry or amend an assessment, a member is under no legal obligation to draw HMRC’s failure to their attention, nor to take any further action". 

On the other hand from the client's perspective if he has a tax liability what prevents him from sending a cheque to HMRC to settle the matter? Is it morally correct to simply avoid payment because (as a result of HMRC inefficiency) he has not been asked for the money? My opinion would be that it is not correct to avoid payment simply because you have not been asked for it - based upon the view that everyone should pay whatever tax is due by law on their total income and gains. Whether to offer up payment is however an ethical matter for the client to consider and not the adviser.  

 

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24th Feb 2016 12:03

But your client does know; you’ve already said computations have been done and sent to HMRC.

Stop playing silly buggers.

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24th Feb 2016 12:31

So if the CIOT guidance states we are under no obligation to draw attention to HMRC of their negligence we are in the clear?

Whether the client chooses to make a payment voluntarily to HMRC is a moral question for him to address as he sees fit? 

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24th Feb 2016 13:44

Problem also arises post death

Mr X dies.  His PR's find he has failed to disclose significant overseas assets. They advise HMRC accordingly .HMRC fail to raise an assessment within the TMA s40 time limits.

a]What liabilities should the PR's include in the IHT returns, filed within the s40 time limits  

b]What should PR's do about the unassessed liability, which is now statute barred ?

 

c]Do the PR's have to file a corrective IHT return when the s40 time bar comes into effect?

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24th Feb 2016 14:18

@michaelblake & @montrose

Michael

You have been a tad selective in your quote of 5.12, stopping as you do before it goes on to say "This will not be relevant where the client is required to self assess." which is the case for the OP.

The client has self assessed, but failed to include a CGT. The OP has realised this subsequently and discussed it with the client who has agreed that HMRC be advised and the OP has written to HMRC to advise that there was an error in the SA, presumably because it was not possible to submit a full corrected return for some reason, and HMRC have ignored that correction note to date.

Having got so far I do not think that the client can now decide that he's done all he needs to and can now do nothing. And going by the CIOT professional guidance  the OP probably ought to consider whether he can continue to act - 5.22 et seq.

Montrose

Perhaps read Graham Usher and Another v HMRC and make sure something is kept back so that the exors do not end up liable

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24th Feb 2016 14:30

Why haven't

you submitted an amended tax return instead of chucking your computation and letter into the black hole of HMRC's postal system?

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24th Feb 2016 14:37

It was past the time limit to submit an amended Return.  We therefore followed HMRC advice and made a full disclosure to them - which they've definitely received but chosen to ignore.

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24th Feb 2016 14:39

HMRC accdpt that TMA s40 is a stautory limitation

Graham Usher and Another v HMRC  did not fall within the s40 time limits

See http://www.hmrc.gov.uk/manuals/chmanual/CH54200.htm

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24th Feb 2016 15:20

Fair enough

Montrose wrote:

Graham Usher and Another v HMRC  did not fall within the s40 time limits

See http://www.hmrc.gov.uk/manuals/chmanual/CH54200.htm

merely mentioned it as I skim read the report recently and thought "ouch!"
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24th Feb 2016 14:42

Then I suppose

we're back to the moral issue. Having done all that's required I suppose it's up to the client whether to pay now or wait for HMRC to catch up and make a demand.

I would be advising him to pay as he has a clear legal obligation to pay the tax but given the way the revenue is run I suppose it's entirely possible they may never actually ask for it.

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24th Feb 2016 14:43

Not to mention

Your interpretation of this:

"Where the client and member have complied with all their obligations under tax law (including providing sufficient and accurate information in a return as required) and HMRC has failed to take any necessary action to start an enquiry or amend an assessment, a member is under no legal obligation to draw HMRC’s failure to their attention, nor to take any further action".

 

One of his obligations under tax law is to pay tax properly due. He hasn't, and so has not been compliant.

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26th Feb 2016 11:52

Morality and HMRC

How I laugh

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26th Feb 2016 12:35

If it were my client

I would advise him to pay what is due.  If HMRC decide not to to raise an assessment or amendment to his self-assessment I would suggest that it a problem for another day.

 

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26th Feb 2016 12:35

There is no point in paying....

...as HMRC will just put the payment on the client's self-assessment account, and as they have failed to action the letter, there is no liability to offset the payment against, so it will just be offset against the next SA liability. You and the client have done everything they are supposed to do in the circumstances, so no further action is necessary.

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26th Feb 2016 12:42

Intention to underpay tax?

JDBENJAMIN wrote:

...as HMRC will just put the payment on the client's self-assessment account, and as they have failed to action the letter, there is no liability to offset the payment against, so it will just be offset against the next SA liability. You and the client have done everything they are supposed to do in the circumstances, so no further action is necessary.

 

Could it be argued that there is an intention to underpay tax?  Is he knowingly holding on to the proceeds of tax evasion?

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26th Feb 2016 12:47

Lat comment from me

If HMRC finally decide to do something in the future will the Accountant get fallout from the Client when an even bigger bill arives? 

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26th Feb 2016 13:10

Pay and get repaid

If the client pays it and gets repaid (or it appears on their next statement as an overpayment), then they will be justified in keeping hold of the payment or reducing their next payment (provided they keep the statement), surely this is perfectly safe and moral.

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26th Feb 2016 13:33

No they won't

billcole wrote:

If the client pays it and gets repaid (or it appears on their next statement as an overpayment), then they will be justified in keeping hold of the payment or reducing their next payment (provided they keep the statement), surely this is perfectly safe and moral.

... because they know it is not correct.

I have a case where HMRC took the client out of SA, then repaid on SA800 year end reconcilliation that was wrong as it ignored other small untaxed sources. Client paid back the overpayment an the small amount of tax due, submitted in the same was as the OP, by letter enclosing a computation, but also a cheque. That was just over a year ago, but when I last checked his account was showing a credit for the correct tax paid and no amendment to the 13-14 liability.

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26th Feb 2016 13:11

amend...

should say 'keeping hold of the REpayment'

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26th Feb 2016 14:19

To be fair, if it was only sent a year ago you are still well within HMRC's expected turnaround period.

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27th Feb 2016 13:50

True

SteLacca wrote:

To be fair, if it was only sent a year ago you are still well within HMRC's expected turnaround period.

but I doubt the situation will be any different next year
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27th Feb 2016 17:44

HMRC and mail

Cheques go to banking, attached correspondence goes into the black hole that is the central mail distribution system...

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29th Feb 2016 10:02

non payment

Doesn't failure to pay the legally due amount create money laundering issues for the accountant?

 

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04th Mar 2016 18:07

CTD

Your client could buy a Certificate of Tax Deposit so the tax is covered if HMRC ever take it up.  If they do not, and it becomes time barred, the CTD can be encashed.

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