disbelief at the conduct of HMRC - BRC penalty threat

disbelief at the conduct of HMRC - BRC penalty...

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I know that records should be kept with regards to mileage and sharing private/business tel bills. what is hmrc's view on this. can a % of mileage be taken off the 2 mot's and for telecom bills? how does one establish the % and does hmrc take a dim view on this? are there any practical guides or accepted practice

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By johngroganjga
21st Oct 2013 16:08

Yes you have to be able to justify the %.  Yes HMRC will take a dim view if you can't.

You establish the % by investigating the facts.

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By [email protected]
21st Oct 2013 17:05

are the business records check a way to get HMRC to levy penalty

I have just received a letter from HMRC following the visit stating that the records were inadequate as he did not see a mileage log and the 67% charge of business for phone costs could not be justified at the time. he is visiting again in 3 months time to check if there has been an improvement in record keeping and if not a £500 can be levied! is this a new way for HMRC to raise revenue? by the way this client is a 73 year old who gets her tax return done by her daughter once a year!!!

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Replying to SteveHa:
Me!
By nigelburge
28th Oct 2013 13:53

HMRC are NOT the arbitors of what constitute acceptable records

freelanceaccountant wrote:

I have just received a letter from HMRC following the visit stating that the records were inadequate as he did not see a mileage log and the 67% charge of business for phone costs could not be justified at the time. he is visiting again in 3 months time to check if there has been an improvement in record keeping and if not a £500 can be levied! is this a new way for HMRC to raise revenue? by the way this client is a 73 year old who gets her tax return done by her daughter once a year!!!

although they like to think they are.

The final say is that of the FTT's findings as a matter of fact.

The chances of HMRC defending a penalty of £500 in your case is remote in the extreme. There is nothing in the legislation that says that mileage logs etc must be kept, just that "adequate business records must be kept". Now clearly adequate records for a large multinational company will greatly differ from those of a little old lady.

It would appear that you have got lumbered with an officer who simply has no common sense and who likes throwing his weight around. If you believe that your estimates of private use are adequate, then stand your ground. If not then keep the logs requested. If you refuse to keep the logs, then it is up to the FTT to decide if your estimates are "adequate" NOT HMRC.

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By johngroganjga
21st Oct 2013 17:14

News to me that HMRC can charge penalties other than for late or incorrect returns.  Will be interested what others think. 

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By [email protected]
21st Oct 2013 17:32

the exact wording of this letter is

About the penalties that we may charge. Because you have not maintained adequate business records, we may charge a record-keeping penalty of £500. The tax law that allows us to change record keeping penalties is section 12B(5) of the taxes management act 1970. we will not charge a record keeping penalty if when we visit in approximately 3 months time you can demonstrate that you have maintained adequate business records throughout the whole period from 17.10.13 to the date of the visit. if the improvements detailed above have not been made, or have not been made for the whole period, we will charge the penalty. please remember that it is very important that the business records are completed frequently and accurately.                                                                                                                                          the inspector identified the following as requiring improvement                                                                                                                                       record of mileage and private use computation for mobile/landline                                                                                                                                    the records were not available at the time which doesn't mean that they were not kept! very interesting and this is the 1st time a came across this. any ideas would be greatly received

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By [email protected]
22nd Oct 2013 11:47

i am minded to send this

letter to the inspector in question but would love any feedback from you guys. I am beyond livid at the vast waste of taxpayers money and petty ness of these jobsworths!                                                                                                                                          

Dear _______________

Thank you for your letter of the 18th October 2013.

For the record my 73 year old client received the letter dated 29th May 2013 that HMRC had an intention to conduct a business record check over the phone. She approached me in early June 13 when she signed a 64-8 to conduct the phone call on her behalf. This was duly sent promptly. When I called towards the end of June the 64-8 had not been received and another copy was sent. At the beginning of July another call was made and again the 64-8 was not on file. After lodging the 64-8 yet again on the 24th July, I called again on the 2nd August to get this phone call interview under way but again this was not on file. I promptly sent a letter with a copy of the 64-8. In the interim and because there was no response to the calls attempted to my client a letter dated 17th August with a proposed date for an on-site business record check was sent.

My records show that we spoke on the 3rd September when you insisted on an onsite visit despite the fact that I pointed out that we would prefer to conduct the telephone interview in the first instance and only because the numerous 64-8’s went awol that the BRC has been escalated to on site. The BRC was scheduled for the 17th October 2013.

When you arrived for the BRC all the source documents for the period under review July to Sept 13 mainly sales invoices, expense receipts and copies of bank statements were made available in hard copy. This was a total of around 30 items of paperwork which you have gone through one by one and my understanding was that you were satisfied. You also stated that all sales invoices were traced back to a credit on the bank statements. The only issue I believe was with a receipt of £10 for a string quartet ticket which required clarification and which required clarification from my client. Since I got feedback and as a costume designer my client also does opera and feels that this particular £10 item of expenditure falls within the wholly & exclusively rule test.

The register of mileage was not available at the time but I stated that my client will be able to provide it should it be requested. The 67% allocation of telephone for business was also questioned and again I stated that I will request clarification from my client. Having requested this I can confirm that the percentage allocation is historical and based on the previous accountants calculations (she had an accountant some years ago who used to prepare the self assessment tax return for my client from source documents but when he retired her daughter took over). Her daughter kept the same calculations and assumptions throughout.

I have totted up the expenditure receipts for the period and even if ALL items of expenditure are disallowed the loss of tax to HMRC would be substantially less than £500, which is the penalty you are threatening my client with.

I would like some clarification with regards to your conclusion that my client does not maintain adequate records and how and in what form in statute would interim business records have to be kept. Since this BRC was for a limited period of 3 months and part way through the year with a deadline for filing the self assessment return for that particular period of Jan 2015 I would like to be educated as to what exactly is required by the term ‘maintain adequate records’.

May I remind you that my client is a part retired 73 year old female who has netted an average of £10,000 from this part time ad hoc self employed business over the past three years.

Finally and with regret the 20th January 2014 for a follow up visit is not convenient as I am sure you will appreciate this date is at the height of tax return season. Whilst we can reschedule for the end of Feb beginning Mar 14 I hope the above explanations and clarifications will be enough to put this matter to bed.

 

Kind regards

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By [email protected]
22nd Oct 2013 11:49

is there any way to bump this question

up.

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By User deleted
22nd Oct 2013 13:31

Agent Account Manager

I would suggst that you register this matter with the AAM Team straightaway.  I personally have never heard so much nonsense in all of my accountancy life !  I agree that no proper judgement can be made of the adequacy or otherwise of the business records from a three month "snapshot".  Is it me or have the lunatics finally taken over the asylum ?  Am I allowed to say that !

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By [email protected]
22nd Oct 2013 13:50

sorry

what is the aam team?

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By User deleted
22nd Oct 2013 14:02

AAM Team

Agent Account Manager - go onto HMRCs website and register for this.  You can then take this issue up with them directly - dispute resolution service is another way of describing them.  I have used them several times and found them to be very knowledgeable and helpful.
 

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By [email protected]
22nd Oct 2013 14:10

thanks for your feedback

would you think the drafted letter above should be sent or would this simply rub the guy's nose even more!?

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By raybackler
28th Oct 2013 13:27

Annual tax computation surely

Business records should record all expenditure and these should mostly be for business income and expenses.  Most clients inadvertently put some personal expenditure through the business and some in the form of costs that need apportionment between business and personal.  These personal costs are excluded or disallowed when the annual tax computation is completed.  Recording an element of personal expense as part of the business records can never be classified as inadequate record keeping in a three month snapshot.

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Replying to lh3f9764bg1g:
Me!
By nigelburge
28th Oct 2013 13:59

I couldn't agree more. VERY good point.

raybackler wrote:

Business records should record all expenditure and these should mostly be for business income and expenses.  Most clients inadvertently put some personal expenditure through the business and some in the form of costs that need apportionment between business and personal.  These personal costs are excluded or disallowed when the annual tax computation is completed.  Recording an element of personal expense as part of the business records can never be classified as inadequate record keeping in a three month snapshot.

But then when did stroppy HMRC officers ever care about what the legislation actually says.

This is a point which can only be dealt with by enquiry surely, not as part of a BRC.

 

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By John R
28th Oct 2013 14:24

Letter

I often write letters such as that suggested - it's a good way of getting your frustrations off your chest, but I would not actually send it. I suggest that admitting in a letter to HMRC that the private use adjustment is baseless and historical could lead to the Revenue being able to make a discovery assessment. No mention of past years should be made.

At present the only issue is whether the client is maintaining sufficient records to enable an accurate tax return to be prepared. Guidance is available as to what the Revenue consider to be adequate records and as far as motor expenses are concerned, it is clear that a mileage log is expected. Whilst most of us would feel that the Revenue are being unreasonable in asking for such a log, the officer will presumably need something so that he can tick the appropriate box in his review questionnaire. They do not appear to be threatening an enquiry into previous years at present but if there is no mileage record or if there is one but it shows a lower business usage than the proportions used in earlier years, an enquiry may well follow.

My advice to the client would be that if she wants to continue claiming then she must keep a log at least for a representative period and she should also mark her telephone bills with the business and private usage. Hopefully the proportions will come out roughly to what she was claiming in the past but if they do not, you and your client will need to consider what has changed recently so that she can be ready with an argument as to why larger proportions were claimed in earlier years - unfortunately "it's historical" could lead to a lot of trouble for your client!

 

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By taxhound
28th Oct 2013 14:24

I always tell my clients

To record everything that is or may be allowable (highlighting those items they are not sure of - I am not talking about hiding things away here) and then we can check it when we do the accounts.  They are not always sure what is claimable but including it in the cash book does not mean we will claim tax relief on it.

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