Enquiry raised after time limit

Enquiry raised after time limit

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An enquiry was raised into a tax return 18 months after it was submitted.

Facts: tax return completed in december 2011 in March 2012 the contents of the return was discussed with HMRC before a refund of tax was made. All the information was included on the Tax Return, wages, terminations payment and compensation sum of £30,000 (which would appear to be the sticking point)

In August 2013 an enquiry was raised.

It was pointed out to the inspector, in first letter that this was outwith the time limit and could he supply me with the information which arose after the enquiry window was closed.

The reply was that HMRC were entitled to look into the matter under section 29 of TMA.

Second letter sent stating that there were only two reasons to open an enquiry so would he provide the information requested above or close the enquiry (as there was no fraud or negligence involved). The other alternative was to deal with the appeal against an assessment he raised (which was incorrect as no personal allowances were included)

Another letter (two months later) has been received stating that yes there are 2 reasons one of which is 'because of fraudulent or negligent conduct and now careless behaviour.'  Which is what he is now accusing the tax payer of????

I feel this is grasping at straws and wonder if he can alter the reasons for raising an enquiry after this length of time?? and would this new 'careless behaviour' apply to an enquiry case already opened i.e. retrospectively.  (He has now issued a information request under Para1 of Sch 36 to Finance Act 2008)

Help??

Scot 

Replies (8)

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Stepurhan
By stepurhan
26th Feb 2014 12:07

Section 29 Discovery

Section 29 is the Discovery provisions. Essentially these allow HMRC to open an enquiry outside the normal window if

Information comes into their possession after the window closes.If that information had been in their possession whilst the window was opened, it would have caused them to open an enquiry.

So you are right to ask on what basis the enquiry has been opened. Reiterate that you consider the enquiry to be out of time. If they wish you to consider the enquiry as valid under the discovery provisions, then they will need to tell you what information has come into their possession, and when, to show those provisions apply. If they do not provide such information you will treat the enquiry as raised contrary to legislation and act accordingly. Make it clear you want specifics. Vague accusations of "fraudulent" conduct are not enough.

The information request can only be valid if the enquiry is. They cannot simply request information out of time in isolation.

EDIT: Misuse of discovery is a personal bug-bear of mine. Too many bad inspectors act as if it means "what you say if you missed the enquiry window". I wonder how often they get away with that.

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Replying to atleastisoundknowledgable...:
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By EB
26th Feb 2014 11:55

Section 29 Discovery

Stepurhan

I have written on 2 seperate occassions to this man requesting the information: answer one was that HMRC had the right to open an enquiry, answer two just received is that he has now altered the enquiry to not fraudulent, not negligent but 'careless behaviour' and has issued a formal notice to supply informaton under Schedule 36 - does the time limit still apply? and can he change the reason for the enquiry some 7 months after he opened it under discovery?

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By mhtax
24th Feb 2014 19:56

Discussed with HMRC?

When you say discussed did you receive a question you answered or did you ring to chase the return and talkked it through with the case worker?

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Replying to Portia Nina Levin:
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By EB
26th Feb 2014 11:46

Discussed with HMRC

mhtax

Talked all the entries on the Tax Return through with 'the case worker'.

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Stepurhan
By stepurhan
26th Feb 2014 12:03

Nope

They can only open a discovery enquiry if they meet BOTH of the requirements I detailed above. The fact that they seem unwilling to say what information they have received or when makes me think they have no right to open a discovery enquiry. Vague talk about careless behaviour is just obfuscation on their part.

To be clear, if the discovery requirements were not met, then the enquiry was never opened under discovery. If the inspector continues to claim to the contrary then they are acting illegally as the enquiry was not opened legally. Finding something in a within time return that is likely to have affected earlier returns would be a good enough reason, but that does not appear to be the case here. Even then that is new information (the actual problem with an in-time return) that would have caused them to open an enquiry if they had it at the time (likely to have been the case in earlier returns), so it would meet the discovery requirements anyway.

Time to make this a formal complaint, wording in as strong language as you feel comfortable with.

Thanks (1)
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By DHarris
26th Feb 2014 12:17

Discovery

As an ex tax inspector I am shocked at how some HMRC officers are ignoring the rules and regulations.

 

I agree with the earlier posts, i.e. ask what information HMRC has received, when they obtained this information and ask the person to get their manager to provide their reasons for believing this constitutes "discovery". If the discovery relates to termination payments then it could be the result of an employer compliance review on the employer and this would not reflect neglect or fraud on your clients behalf.

 

Stick to your guns and ask the manager to respond otherwise you intend asking for a closure notice via the tribunal service.

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By tonycourt
26th Feb 2014 13:50

Inexperienced inspector

From what you say it sounds to me like you're dealing with an inspector who is not well versed in this type of situation.

Use of the word careless suggests he is getting confused with the penalty legislation where caresless behavoir is the minimum criterion for a penalty to apply. "Careless" does not appear in S.29, S.36 or S.37 - which measure the level at which HMRC can make an out of time assessment:

S.29 - discovery S.36/37 Fraud, willful default or neglect

In this instance, at least at this point in time, arguing over the  legal authority for the out of time  assessment is in my view is mostly pointless. HMRC are well within time to issue a fresh assessment using the proper authority if it suspects underdeclarition for any of the reasons mentioned above.

Firstly I believe it would be advisable to appeal against the assessment - even if you're late it is almost certain HMRC will admit the appeal.

I think the best approach is to pressure HMRC for a reason behind the assessment. Sooner or later they will have to cough up the information and making an appeal will should open a dialogue which will lead to getting answers.

Having made the appeal if the inspector continues to delay or tries to go on a fishing expedition into the return in general I would write and say you intend to request at a tribunal for the assessment to be cancelled. HMRC must disclose details of why they have issued the assessment - they can't leave it until they turn up at the tribunal! However it won't get any where near that far, but if the inspector continues to provarocate there's no reason not to start the wheels in motion for a tribunal, it should force his hand to confirm your suspicions that the trouble lies with the termination payment.

Good luck!

 

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Replying to Glennzy:
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By norstar
17th Mar 2014 16:27

Careless whisper?

tonycourt wrote:

Use of the word careless suggests he is getting confused with the penalty legislation where caresless behavoir is the minimum criterion for a penalty to apply. "Careless" does not appear in S.29, S.36 or S.37 - which measure the level at which HMRC can make an out of time assessment:

Not intending to hijack the thread, but I have a similar situation and the inspector is referring to careless behaviour as a justification for making a discovery assessment "ok". He is relying on the HMRC guidance which says:

"Section 29(3) to (5)

Where the taxpayer has already delivered a tax return for the year a discovery assessment cannot be made unless either:

the loss of tax was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf, orwhen the time limit for issuing a notice of enquiry into the return passed, or the enquiries were completed, the officer of the Board could not have reasonably been expected, on the basis of the information made available to him, to be aware of the situation mentioned in the first paragraph under this sub-heading above."

So he's saying we've got no defence against a discovery assessment because the the client may have been careless in omitting the income. Presumably then, the basis of defence is that the inspector has not proven careless behaviour?

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