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Time to close tax enquiry

Time to close tax enquiry

Having been in practice since around 2007 I'm not necessarily experience in respect of tax investigations/enquiries.  We have had a few basic ones which have all been fine.

Anyway we have one current investigation that we would like to seek some advice on.  mainly if we should push for closure.

The client has history with HMRC and a substantial debt with them they they have been chasing since 2008 and given his circumstances will most likely never see any of it.  The client has no reason anymore to be filing a tax return and has not since 2013.

April 15 - Notice of compliance check for tax years up to and including 2014.

May 15 - client responds with a P60

July 15 - response from HMRC - can you confirm with bank statements

Oct 15 - after multiple requests to bank finally provide bank statements to us.  Nothing to really hide so sent.

Jan 16 - response from HMRC - thanks can your provide explanation of some transactions (see below) and what about some properties we see they sold in 2008

The transactions - client was self employed before they came to us and we were not involved in this.  They had decided it was too stressful and one of the members of staff took over the business as a new limited company.  The old Self-Employed individual was emplyed by this new company.  Customers continued to pay into the old self-employed individuals bank account.  This was effectively given back to the company and there was a small difference of circa £150.

Our thought is that we have provied plenty of information and explanations and the inspector is now widening the scope to old properties and does not seem overly focussed.  The client appears to have no knowledge of any undelcared income yet HMRC keep aksing if we have any income we wish to declare that they are not aware of.  We would liek to push for closure based on this.  Is this the right way to go?  If not how would others deal with it.  I'm happy to take criticism for how the enquiry has been handled so far but please make it constructive so it can be learned from.

Thanks if advance.

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04th Mar 2016 10:02

A few things spring to mind stopping you closing this if they haven't been answered

"Some properties sold in 2008" does rather beg a further question. What were they and how accounted for? I suspect HMRC think there are hidden assets to chase to pay the substantial debt. Also how much did the new limited company pay for the old business

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By morgani
04th Mar 2016 10:36

@Bernard - thanks for the reply.

Nothing was paid.  The guy didn't want the stress and felt giving up the business for a role within that business with less stresss was worth it being handed over.  He was paid a reasonable salary.

The two properties were dealt with as follows -

Property 1 - was purchased from his in laws as an investment.  It was in a bad state.  The cost of improving the property and the house price falls in 2008 meant a small gain he thinks of approx £10k at the most.

Property 2 - Was a commercial premises held by his old (now dissolved) Ltd Co.

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04th Mar 2016 10:47

I can see why HMRC persist when this type of transactions occur

Property 2 - what happened to it when the company was dissolved

 

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By morgani
04th Mar 2016 10:54

I can see why HMRC have some interest.  The enquiry only started as a 2013/14 but was it just awaiting opportunity to ask back about these properties?  It was sold by the ltd company as it stopped trading.  That company was only recently dissolved.

Client would rather go completely non-compliant and just say I'm answering nothing more I've given what you aksed for so tough!  I would rather answer the questions and wish to sell this to the client so we can progress and get the enquiry closed.

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04th Mar 2016 11:11

Tell the client that if he doesn't comply and co-operate  HMRC will make a discovery determination, add penalties up to 100% of the tax, plus interest on both and if he doesn't pay bankrupt him. That may adjust his thinking

From what you've told us so far there are still unanswered questions so I don't think they'll close it yet. The time scale you are working to is not over long particularly when you took from July to October to provide bank statements 

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04th Mar 2016 11:43

Widening the scope

As others have said, there do still appear to be questions to answer. Non-compliance on the queries to date would be unwise.

What you might want to try is asking them to confirm that they do not propose to raise any further questions, except to clarify information you are providing. Hence asking for explanation of transactions on the bank statements is arguably reasonable, as they needed to see the bank statements to know the transactions existed. By contrast, they will have known about the property sales already, so should have asked about these well before now.

By asking for this confirmation, you put them on the back foot if they try to pull out any other queries from nowhere at a later stage.

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By morgani
04th Mar 2016 12:09

@Bernard - Client won't care about the bankruptcy thing.  He owes them well over £100k but has no assets.  They have a charge on his property for this but are behind mortgage creditors.  Even before HMRC the charges are around £300k in excess of the house value.  HMRC are highly unlikely to see the money in his lifetime.

He requested HMRC bankrupt him at the court hearing for the latest attachment for further interest penalties etc and they said they won't as it is too costly and not worth it.

I've tried this route of explanation with him and he really doesn't care about anything monetary as far as HMRC are concerned only anything that may carry prison terms.

Still useful and confirm my way of thinking though so thanks.

@stepurhan - Useful points, thanks.  They have had explanation of the transactions thye have just misunderstood.

 

Ultimately though if he decides to undertake this himself in that manner then my only decision is if I am confortable continuing to act.  I presume if I write being this obstructive it may not reflect well on us as a practice for future enquiries.

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By Ruddles
04th Mar 2016 12:15

Have you asked HMRC to set out in clear terms exactly what their concerns are? Only you are in a position to consider whether those concerns are reasonable or not. Based on what little information you have provided so far, I would say that they are.

A more meaningful question to ask yourself is whether or not it is worth continuing to act. If the client isn't bothered about bankruptcy I'd be inclined to walk away - how certain are you of getting paid for this work?

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04th Mar 2016 14:47

If that is his attitude why bother to act for him. If he isn't going to co-operate.or want to resolve the investigation, disengage and leave him to HMRC 

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04th Mar 2016 15:40

Assuming that the OP is getting paid for his services ....

bernard michael wrote:

If that is his attitude why bother to act for him. If he isn't going to co-operate.or want to resolve the investigation, disengage and leave him to HMRC 

.... then (from a rather mercenary perspective) this will be an interesting case for the OP and from what they have said this will also offer some great experience that may help them in the future.

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By morgani
07th Mar 2016 11:05

Interesting the case certainly is.

We are being adn will be paid for the work we are doing.  Whilst he might take such an attitude with HMRC in respect of money he owes them we have him on monthly DD and have never had an issue.

It would be great to take this through and see it as experience of something more than the plain old basic enquiry.  Something a little more challenging that can be learned from.  If obviously at any point I felt I was not is a position to advise I would inform the client.

My concern I think is that should I decide to continue to act for the client and therefore follow instruction to be awkward and not answer questions will it give my practice that reputation with HMRC.  Will I always be seen as the awkward practice who doesn't co-operate.  Or will I be judged on each investigations merits?  Secondly if they do take that thought does it even matter i.e. make any difference to me?

 

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By Ruddles
07th Mar 2016 11:12

Who is (not) answering the questions?

Make it clear that if you are unable to answer questions it is because of the taxpayer's reluctance to provide the information/explanations, not yours. In considering whether HMRC's questions are reasonable (which is why you need to ask them to set out their concerns) it is sometimes helpful to put yourself in the Inspector's shoes (unpleasant though that may seem):

You've come across - and put a note on file about - information that suggests that the taxpayer disposed of one or more properties (was this reflected in tax return(s)?). This leads you to suspect that there may be unreported gains and/or undisclosed income. How do you think your superior would react if you just decided to close the case without following this up?

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By morgani
07th Mar 2016 11:28

True

Very good Ruddles.  I do like to try and play 'devils advocate' where possible as it is better for the client in my opinion.

I can certainly see where the inspector is coming from.  I don't have the info to answer the questions as I was not acting for the client then.  He doesn't want to go into it other than the brief explanation I have so can only answer accordingly if we choose that option.

The advice on here is giving me plenty to think about so it's really helpful.

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07th Mar 2016 12:43

You indicate that there has been no requirement for a Return since 2013, but that HMRC are conducting a compliance check "up to and including 2014". Has he completed a Return for 13/14? If so, was it sent (or indeed any of the Returns under enquiry) within the time limits, do HMRC have legitimate grounds for discovery of the potential CGT in 2008 that they appear to be attacking?

Have you considered just suggesting a meeting to the Inspector between him, yourself and your client where concerns can be addressed and answered post haste rather than protracted correspondence for what you suggest is going to amount to nothing.

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By Ange
07th Mar 2016 16:13

Agree with SteLacca

I think you need to check whether HMRC are within the time limit to open this enquiry and have legitimate cause to be opening earlier years. You should only be providing information to which HMRC are legally entitled and should not worry about how HMRC may perceive you, from the information provided it sounds like this may be a bit of a "fishing" exercise.

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By morgani
08th Mar 2016 11:29

Thanks all.  We have now agreed a way to respond which is along the lines of we have answered the one question have asked and here is the info on the involvment in the new business.  We would like full disclosure of what information you hold.

Thansk for all the help it's most appreciated.

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