Enquiry into tax return - how co-operative would you be?

Enquiry into tax return - how co-operative...

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My client has a tax enquiry into his 2013 tax return. He is a sole trader  - professional services, not CIS or a risk industry

The initial information requests were straightforward regarding his self-employment and return entries, but they have now taken a turn. Questions are being asked and proof requested about the funding of the purchase of his home which took place in the tax year prior to the one under enquiry.

The client has nothing to hide and could provide all the information asked for but there would be some inconvenience. My initial view is that the line of enquiry should be resisted as irrelevant. Perhaps it would have been understandable had they enquired into the 2012 return but they didn't.

The client does not want to cause a fuss and would prefer a speedy resolution to the enquiry.

How would you be inclined to proceed?   Thank you.

Replies (13)

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Stepurhan
By stepurhan
31st Oct 2014 16:40

Gut feeling

Given that your client is able the information, and is presumably OK to disclose it, you need to ask yourself one question. Do you think providing this information will bring the enquiry to a speedier resolution?

If you do, then it may well be worth providing it. Your natural inclination is to resist as a point of principle (On the facts presented, I can't see any justification for asking either so I echo that sentiment). But if it is not detrimental to the client and will help bring about their desired speedy conclusion then sometimes we need to set personal feelings aside.

However, this sounds like a fishing expedition, and acceding to this request could lead to further demands outside the scope. That would actually not bring the desired speedy resolution. If you think that is the case then a brief letter asking how this information is relevant to the enquiry would seem in order, pointing out that the transaction took place outside the year under enquiry. If the reasoning they come up with is spurious then this should be pointed out and the request resisted. Be sure to inform your client of your reasons for doing this, and the potential for further grief of not kicking up a fuss in this context. As long as they are reassured that it is HMRC's actions, not your response to them, that is unnecessarily prolonging the enquiry then that should be fine.

Thanks (4)
By The Highlander
31st Oct 2014 16:46

fishing

Sound to me like they're fishing for evidence of undeclared income.

i.e how can you afford home x, with only borrowings of y, if you have only earning z?

I would phone the assigned agent for the case and ask him/her why they are requesting the information and what relevance it has to the tax query in question.  Put a bit of pressure on them and they're likely to drop the request, if they don't then you can send them the info. 

No point in starting any wars if your client isn't bothered and can get the evidence, but likewise I think it's definitely worth a quick phone call to see if you can squash the query first.

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By andy.partridge
31st Oct 2014 16:55

Thanks

I agree with you both, stepurhan and The Highlander. Thanks for that.

I am always up for fight with HMRC and when they are overstepping the mark. Sometimes it is difficult to assess what is in the best interests of the client.

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paddle steamer
By DJKL
31st Oct 2014 17:03

Presume 2012 is out of time

 

If 2012 is out of time, which I suspect it is unless it was submitted very late, I am not sure how cooperative I would be furnishing the requested information for an earlier year on a voluntary basis. 

Does this tactic of cooperation , I appreciate to speed the enquiry into 2013 ,not increase the risk to the client? I appreciate the OP appears to believe the client has nothing to hide, over the years I might have said that about a few clients prior to receiving a little surprise.

This is a catch 22 for the agent; agree to supply the information blind before ensuring there is no issue, or check the facts before agreeing and if there is an issue you then require to insist the client comes clean or cease to act. Given HMRC currently appear to be asking for information outwith the year not sure I would tempt providence by voluntering something the client does not need to supply at this stage.

 

 

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By User deleted
31st Oct 2014 17:18

This seems to be ...

... th etack HMRC are taking, I have two ongoing where the prima facie letter enquires in to a specific tax return, then asks for details of the acqusition and funding of assets prior to that period.

I have to answer on Monday as they are also getting exceedingly stroppy if you say you need more time to assimilate information and start threatening penalties!

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Replying to Mr_awol:
paddle steamer
By DJKL
31st Oct 2014 21:04

Prior year asset acquistions

Old Greying Accountant wrote:

... th etack HMRC are taking, I have two ongoing where the prima facie letter enquires in to a specific tax return, then asks for details of the acqusition and funding of assets prior to that period.

I have to answer on Monday as they are also getting exceedingly stroppy if you say you need more time to assimilate information and start threatening penalties!

I can see HMRC point if say interest is being claimed in the return being investigated and they wish to check whether borrowed sum on which it is claimed is correct re asset purchase, however if beyond that sort of connection, with no relevance to any figures within the return under review , then IMHO they need to be advised they have no right to the information. Re the OP it is the taxpayer's house i believe, what relevance unless use of house as office claim?

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By ShirleyM
31st Oct 2014 21:37

I'm not sure it is relevant but ...

HMRC enquired about how a house purchase (a few years previously) was funded for a client of ours, who was a very low earner and his wife was not employed.

Our client said that his wifes parents had contributed to the substantial deposit and helped them with the repayments, at which point HMRC requested copies of the parents and clients bank statements to confirm the transfers of money.

Like Andy, I wondered whether HMRC had the power to request this information, so I explained the problem and informed the client that we had no experience with enquiries of this nature but I could introduce them to a specialist. The parents had a relative who is a high profile accountant in London and they persuaded him to take on the enquiry. I never heard anything more from them.

I wonder if HMRC are now targetting house purchases by low earners.

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Replying to Mhunt2072:
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By User deleted
01st Nov 2014 14:16

This ...

ShirleyM wrote:

HMRC enquired about how a house purchase (a few years previously) was funded for a client of ours, who was a very low earner and his wife was not employed.

Our client said that his wifes parents had contributed to the substantial deposit and helped them with the repayments, at which point HMRC requested copies of the parents and clients bank statements to confirm the transfers of money.

 

This particular issue, specifically, causes IHT questions. Although, if nobody had died, I'm unsure on the scope HMRC have to enquire into this

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By User deleted
31st Oct 2014 21:53

One of these ...

... has about 5 properties now acquired over a period, all above board but it is still a lot of info to dig out in the short window before the threat of fines started!

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By Nagindas Khajuria
01st Nov 2014 12:56

Inquiry into tax return

I recommend you cooperate fully as you do have the information but it would just cause a bit of inconvenience to you or your client. However stick to your guns until the end; and if need be  go to first Tier Tribunal as I did recently and won after about two and half years of correspondence.

During that long period, more reasoning and interpretation of facts and relevant tax law resulted in a stronger case benefiting taxpayer.

Thanks (1)
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By User deleted
01st Nov 2014 13:11

Cooperate

It is advisable that you cooperate without being submissive (always be firm with what the law says) as it will help reduce penalties, should there be any.

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Chris M
By mr. mischief
01st Nov 2014 17:51

My approach

See previous posts for a successful outcome to this strategy in a VAT case.

Letter 1 - very polite and fully compliant reply to HMRC.

Letter 2 - as letter 1.

Letter 3 - hob-nailed boots on making it clear why I consider the additonal information request to amount to a total waste of the country's resources and my tax insurer's funds.  Also saying that I hold the person in HMRC to whom the letter is addressed to be personally resposible and accountable for any such further waste of money.

Note you must be on rock-solid ground to go for this.  In the case of the VAT enquiry, HMRC had just asked for lots of spurious information without dealing with the real issue, namely that the majority of my client's sales were exempt and hence she was correct in not registering.

So if you are confident that your client bought the property "with clean hands" then this approach might work.  I believe this approach is one reason why the level of enquiries in my client base is very low, another one being that in the course of 10 enquiries over the past 5 years the total extra tax raised for the punter at Number 11 has been £0.00.

 

 

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By Nagindas Khajuria
02nd Nov 2014 22:08

Personal Tax Return Inquiries

The procedure is process first and select later for inquiry. My understanding is that HMRC resources have always been limited and only about 3% of the 8 million tax returns are inquired into every year. I wonder whether requirement to declare private drawings and a balance sheet as mandatory would make life easier for HMRC and create more fees for accountants. Whether public or private time and money is wasted in inquiries, the damage to gross domestic product and net income per capita on purchasing power parity basis is huge.

Another anomaly is that if one claims welfare benefits, then HMRC asks for partner's income details. However, if one does not claim benefits, then joint income of a couple is not relevant. However, if drawings are to make any sense, then unless the couples,twin tax returns are reviewed concurrently, inquiries raised could be a waste of time and money.

We may be leaving the European Union because of EU migrants coming to UK to claim benefits. So tightening this area could avoid such a drastic step.

May be the entire concept of independent personal taxation needs to be revisited.

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