over-zealous tax inspector or over-awkward accountant?

over-zealous tax inspector or over-awkward...

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The Inland Revenue have started a tax enquiry into one of our clients (a limited company). The whole approach by the Inspector seems very strange to me, for example:-

Her first letter (before she'd seen any records) asked for a copy of the trial balance and said "in the first instance I would like to meet with the directors."

I refused both, quoting their Enquiry Manual (para EM2575) - "you should not seek access to accountant's link papers as a matter of routine".

Her response was that "requesting link papers in a full enquiry case helps assure us that the underlying records being tested agree to the final figures used in the accounts."

I still refused and told her she appears to be doubting our competence, which she has denied but she is "somewhat disappointed that you are unwilling to supply this documentation."

I've got no problems with refusing meetings with clients. I know they don't like it but I can live with that!

This is, however, the first time in 20 years I can recall a request for a trial balance ever made, and certainly never made in the initial letter before any records have been produced.

Have others had similar experiences?

Have we got an over-zealous tax inspector or is it just me being awkward (or over-sensitive!!)
Stephen Kendrew

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By AnonymousUser
16th Aug 2005 14:56

What is the problem?
I see nothing unreasonable in presenting a trial balance, together with details of accountant's journal postings. The Inspector will otherwise be unlikely to be able to follow the records through to the accounts and thus to the return. I would distinguish between what I would describe as link papers (journals etc) and the working papers themselves (which I agree I would not provide in absence of a s.20 notice)

Enquiries are a fact of life. While it is not the accountant's job to make the Inspector's job any easier than it need be, on the other hand it is his job to ensure that the enquiry progresses as smoothly and as quickly as possible so that the client's best interests are given priority. I fear that resisting something as innocent as a trial balance will do nothing but antagonise the Inspector. If there is nothing to hide, why resist a reasonable request? If there is something to hide, chances are it will be found and how will your/client's resistance be viewed then?

I would be inclined, therefore, to refer to EM2575, stating that Inspector's request is not in accordance with their own instructions, but in the interests of co-operation the trial balance is provided.

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By stephenkendrew
16th Aug 2005 15:23

precise wording
The precise wording of her initial request was:- "please forward a copy of the trial balance (using figures from prime records) with detail of adjustments made and journal explanations in arriving at the figures included in final accounts."

Her subsequent letter said that "requesting link papers in a full enquiry case helps assure us that the underlying records being tested agree to the final figures used in the accounts and avoids duplication of work. They are also very useful documents and can make record examination significantly more efficient."

This is all before (I would underline or put this in bold if I knew how to!!) she has actually seen any of the records.

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By AnonymousUser
16th Aug 2005 12:56

Over zealous tax inspector
Yes, over zealous Tax Inspector in the mode of "I'm a nice person doing my job, if you won't help me then what are you hiding".

The Link papers issue is an interesting one, as many Inspectors will try and say that "link papers" (whatever they are - not in Oxford English Dictionary last time I looked, not defined in Taxes Acts as far as I am aware...) are different to "accountants working papers". I don't think that would stand up in court though (and, in fact, I seem to recall a Commissioners case where the IR were rebuffed on this recently - only becasue I read it and through, "erm this justifies my long held view and disproves most of the Inspectors I've argeued with".

However there is another aspect to this - if its a company it may well be that your link papers form part of the Companies records under the Companies Act - don't know what affiliation you are but the ACCA rule book has a good section on this.


For now, stand your ground on the link papers.

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By User deleted
16th Aug 2005 17:58

Formal request
The initial stage of an enquiry is informal and the inspector can request all and sundry whether or not the handbook or legislation gives him/her the power or authority.

The inspector's request is ambiguous:

Trial balance as at what date?
Detail of adjustments to what?
Journal explanations of what?

Section 19a gives the inspector power to call for documents,accounts and particulars from the taxpayer for the purpose of enquiring into the return.Documents must be in the taxpayer's possession or power and accounts and particulars must be reasonably required.

The trial balance does not appear to be in the taxpayer's possession or power.The inspector may request particulars relating to the entries in the self assessment.

I would be inclined to provide the inspector with the opening and closing trial balances with a detailed breakdown of debtors and creditors with an invitation to issue a section 19a notice in respect of any items requested in the opening letter and not provided.

However, you are probably the best judge of the course you should take in the light of all the circumstances known to you.

As far as meetings are concerned, I take the same view as you do-no meetings-all quetions in writing.

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By AnonymousUser
16th Aug 2005 12:57

Found the commissioners case

"Guest House Proprietor" SPC 454.

Reported in Taxation 10/3/5.

 

 

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