Discovery Letter

Discovery Letter

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Hi there,

We have received a discovery letter for the periods 2002 and 2003, claiming that income has been received from property letting (personal).

However, the person concerned has not received any property income, during that time, previous periods, or even subsequent periods.

The letter claims that the inspector wishes to make a discovery under section 29 of the TMA 1970, I presume since the time for a normal enquiry has now lapsed.

What could be the real underlying reason for this "discovery" since the claim for property income is wrong, is the Inspector fishing for reasons to start a discovery (and we give them one by replying with unneccesary details)?

What is the best way to deal with such a request? My concern as stated above is that we wish to avoid giving a reason to open a discovery, mainly because of the waste of time and effort it will represent.
Colin Artiste

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By User deleted
19th Feb 2009 09:33

Do not lose heart!
We have all pointed out various things that may be behind the inspectors letter. There will be a reason for it which may or may not be correct.

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By Bosctax
18th Feb 2009 17:35

Memories!
Years ago I had a case where the Inland Revenue alleged a client was letting out his home. They even sent me a list of all the tenants' names which they said they got from the voters' list. I duly checked the voters' list and there they all were! When I challenged the client, he said he'd never heard of any of them except one, which was the name of the guy he had bought the house from some five years before. I had a long chat with the Electoral Roll officer at the town hall, who eventually admitted that all the mysterious names were previous occupiers of the premises. He said that, even though the annual voters' registration forms completed by my client over four or five years had listed only the client and his wife, he [the ER officer] had not removed the old names from the list in case their omission had been an error and he did not want them denied a vote! He agreed after some persuasion to write a letter along those lines which I duly forwarded to the tax inspector. Immediate end of inquiry! The lesson I learned from that was not to take everything at face value. I can't remember if the voters' list was ever changed, though.

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By spikecat
17th Feb 2009 17:34

Similar scenario just similar address for holiday let
I had a similar case, revenue raised a discovery letter, re additional income potentially not declared, I contacted inspector direct, apparently there was a property being let on a holiday letting site, that was owned by my client, end result was that client did own a property in that area and it shared a similar address to the holiday let one (to the point they were always getting each others mail) so solved quite quickly ! Inspector had got information direct from holiday letting brochure.

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By User deleted
18th Feb 2009 13:08

Local government
We had a similar case where HMRC were adamant, in the end it turned out that they had a list from the local council of housing benefit payments to the client, which in reality were council tax payments by the client....... The inspector was a bit sheepish......

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By User deleted
18th Feb 2009 10:16

David
I am not saying what we may have reported

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By raycad
16th Feb 2009 23:39

Out of time?
I agree with Andy's posting and would also add that, unless the Inspector has evidence of fraud or wilful default (see EM3200), the time limit for a discovery challenge, even for 2003, expired on 31 January 2009. Even if the discovery letter was received before the end of January it is now too late to make a non-ETL assessment (see below).

It is true that, with support from higher up (see EM3345), an Inspector can raise extended time limit (ETL) assessments up to 20 years back. But the ETL procedure is normally reserved for cases where something has been discovered during a "normal" SA or SCO Enquiry.

If it were me I would just reply by saying the client did not have any property income in either of the years concerned. But it would be interesting to see what happened, Colin, if you were simply to ignore the Inspector's letter altogether!

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By billgilcom
17th Feb 2009 09:26

Professionals take care......
see the following link for a similar position on offshore bank accounts that need careful handling http://www.wamstaxltd.com/Dont_let_them_bully_you.html

However from the client's point of view this could become an interesting scenario. If in fact clearly there has been housing benefit claims then there was rent and while the initial failure to notify chargeability or the incorrect return may have neen simple negligence the subsequent and "persistent" failure to make the disclosure when the matter is brought to their attention becomes clearly wilful. Additionally as ownership of the property must have passed to the client prior to the claiming of the housing benefit the subsequent disposal may well have given rise to a chargeable disposal in 2004 or later (and still in time).
Of course the ETL hurdle requires HMRC to do nothing more than "prove" there was neglgence before the onus returns to the client to displace the assessment.
I think the client needs to sit down and decide which way he wants to go....... and yes SOCA considerations for the professional.......

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By gilderda
16th Feb 2009 17:08

Strictly speaking

... there's no such thing as a discovery enquiry.

The Inspector obviously believes he has sufficient information to raise discovery assessments (although probably not enough to quantify them absolutely), and is giving your client the chance to "come clean" first and make any disclosures he feels are appropriate as well as claiming any deductions from the "undeclared" income.

Your client is under no legal obligation to provide him with anything as he would be during an enquiry, he can just tell the Inspector to get stuffed if he wants.

The problem with that approach of course, is that the Inspector will just raise discovery assessments and your client will then have to go to the cost and trouble of appealing them at the Commissioners.

If your client genuinely doesn't believe he had any income from property (including positions as a trustee, housing benefit etc) then you might be able to coax out of the Inspector what has led him to the conclusion he's reached, maybe some details on the property/ies involved for example.

It could be that there is a genuine reason for the misunderstanding on either part, as the third party information HMRC use to make these discoveries is occasionally inaccurate. Bank interest figures for example have been known to be attached to the wrong taxpayer or one of a similar name and address.

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David Winch
By David Winch
16th Feb 2009 17:07

Waking the dead

There is nothing in the MLR 2007 or PoCA 2002 to indicate that reports should not be made about dead persons. Indeed the authorities can, and do, recover proceeds of crime from the estates of dead persons under PoCA 2002 and other legislation.

I do wish your comments would not dig deeper holes. You now suggest that the spouse conspired to defraud the council by whom she was employed. That means you should be reporting her to SOCA as well.

Good grief!

David

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By User deleted
16th Feb 2009 16:59

Surely not David, not dead people.
Aged parent had been dead three years when HMRC got on the trail, it took a while to clear the house and get round to selling it.

The twist was that housing benefit had been sorted out by spouse who worked in council housing department and credited it direct to parent's bank account. HMRC may have been tipped off by spouse as part of a divorce settlement,

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By Fred Hoad
16th Feb 2009 16:46

Essex Man
I'm not sure what I mean yet either!

We have had the discovery enquiry and we have asked the client who has a recollection that a DSS receiving relative was in the property at the time.

I'll see how it pans out but I assume the HMRC info is from the DSS then it may just be a question of quantifying any expenses.

We'll see what happens.

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David Winch
By David Winch
16th Feb 2009 15:41

Anonononon

This sounds to me to be a Housing Benefit fraud, in that Housing Benefit was claimed when no rent had been paid.

Strictly speaking you should have reported the aged parent to SOCA!

David

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By User deleted
16th Feb 2009 15:19

@Fred & Colin
Fred I'm not quite sure what you're getting at. Are you referring to Housing Benefit? If so, it is commonly paid direct to landlords, and it is rental income. Furthermore HMRC get lists from local authorities of who's had what amounts of HB paid to them. So if the landlord's expenses, including mortgage interest, don't exceed the HB there is likely to be a liability.

Colin, you say "is the Inspector fishing for reasons to start a discovery" but that is not legally possible. A discovery enquiry needs to be potentially able to be followed up with a discovery assessment. HMRC can't make a discovery assessment without having something to assess, and defend on appeal.

HMRC certainly have some information. For example when I was a lad they used to get information from letting agents though I don't know if they still do. As previously suggested, it could be wrong, or they could have attached it to the wrong person - but statistically neither of these is more likely than it being right.

So your first port of call is to ask your client to rack his/her brains. If that produces nothing then you must telephone (not write to) the Inspector laying out exactly what your client says. If you're lucky you'll get a broad hint as to where the information came from.


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By User deleted
16th Feb 2009 14:29

Be careful
We had a client who had taken title of his aged parent's flat some time ago in order to save it if she later went into a home. Subsequently a theoretical rent was paid so aged parent could claim same rent from local council. No money changed hands but when mother died and property sold HMRC picked up sale and, realising the owner did not pay tax from that address, did some reserch and discovered the rent....

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By Fred Hoad
16th Feb 2009 12:45

Probably a return should have been made...
We have had a similar thing. I think in this case there was a property that the taxpayer owned but was used for a family member who was being paid by DSS.

I would suggest then that it is a DSS list that has produced the discovery information.

The taxpayer may not have made any money but the Revenue see income being earned.

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By User deleted
16th Feb 2009 06:53

Sure?
Are you sure that the client is not a trustee or nominee for someone else or a settlement or will trust which receives rent? This is a common error by HMRC. They cotton onto the person's name without realising that he owns the asset in a non-personal capacity.

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By User deleted
15th Feb 2009 19:58

Really?

I find these letters are a pain, but in the majority of cases HMRC usually have good reasons for asking the questions.

It sounds like your client's name has come up on a list provided to HMRC.

If the client is adamant that there is no rental income then I would ring the officer and point out that the client has no knowledge of any rentals and ask for some assistance in solving the problem.

It never ceases to amaze me how the realisation that HMRC really do know about the property causes immediate recall!

Of course the initial denial is a problem in itself.

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