Letter from HMRC with subject REPAYMENT CLAIMS-SHARING RISK CONCERNS

Letter from HMRC with subject REPAYMENT CLAIMS...

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Hi all,

I run a small accountancy practice where I have different clients for self assessment from Construction Industry Scheme (CIS). All of these clients get refunds for their taxes from HMRC which were already deducted for them by their contractors. Recently I have received a letter from HMRC which is as follows:

HMRC is now inviting a number of agents to discuss with them, on a one to one basis, the risks that all or part of their client base may present to the Exchequer.

This approach to you has been made on the basis that you submit significant numbers of returns of behalf of your clients that result in a repayment of tax. Additionally, of those returns that HMRC has challenged, a large number have required an adjustment that reduced the original claim for repayment.

This invitation does not constitute any type of formal enquiry or compliance check. The meeting has been requested so that HMRC can better understand the current position from your point of view and to test if the risks identified from compliance checks in the past are still present.

HMRC has already met with a number of agents who submit returns that result in a repayment of tax. On review we have found many of the returns submitted to be incorrect and our experience has shown that when challenged the returns have either non allowable expenditure or estimated expenditure which cannot be adequately vouched or rationalised. To address this we requested that they should remind their clients of their obligation on record keeping to ensure returns are based on kept records.

We have worked with the agents we have met to improve their process to give an assurance that the returns they submit are based in maintained records. This includes tests to ensure that expenses have been incurred in the amounts claimed and are allowable for income tax purposes.

HMRC would therefore like to discuss with you the work you carry out in compiling a return that results in a repayment of tax.

If any significant issues are identified as a result of our discussion I would be keen to talk about how the position for your clients can be remedied with the minimum impact to your practice. This would include looking to see how any issues could be resolved without the need for HMRC interventions in each individual case which, as you will appreciate, would be resource intensive for both yourself and HMRC.

I have to respond to this letter to arrange a meeting with the inspector to discuss about the clients and the practice. I wanted to know from other people if they have received the same letter from HMRC and already had the meeting with the inspector. 

If you already had the meeting, please tell me what kind of checks they might do on the clients and what information they will want to see in the clients file. Will they pick up the random files or they will discuss the general issues regarding the clients expenditure included in tax returns.

Any help on that will be highly appreciated.

Regards,

John

Replies (5)

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By Mouse007
22nd Feb 2012 18:19

Is this bit True?

"you submit significant numbers of returns of behalf of your clients that result in a repayment of tax. Additionally, of those returns that HMRC has challenged, a large number have required an adjustment that reduced the original claim for repayment"

If so I'm not surprised that they would like a "chat", on the face of it it appears reasonable ground for concern. There may of course be a good explanation and they need to understand it if there is. Otherwise the invitation is to resolve any issues, presumably by you undertaking to review all claims for all clients and submitting any corrections.

I don't think you should allow access to any files however (they do not appear to be asking for that). I think they are inviting you to review matters to avoid them opening enquiries on the whole client base, perhaps best to co operate.

Might be worth having a chat with your PI insurance company for advice and consider having an external review from another practitioner first. If you find something amiss and tell HMRC first I get the impression they may allow you to sort it out yourself.

At least that would keep you in the driving seat.
 

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By PaulFSZ
23rd Feb 2012 12:00

Received the same letter

We too have received a copy of the letter. It would be helpful to hear from practitioners who have had discussions with HMRC on this subject. It could be a general letter sent to practitioners who have had refunds received for clients working in the CIS and had enquiries resulting in revisions made to the assessments. We have had some enquiry cases on expenses resulting in revised assessments, however cannot be sure as to the ‘large number’ as mentioned on the letter. Many of the builders/subcontractors do not maintain adequate records and some estimates are necessarily made albeit on a conservative basis. However the estimates can be substantiated as well.

In many instances income side has been the problem, because HMRC no longer provide us with the client’s CIS earnings and tax details. The client does not receive all the statements of payment and deductions due to several reasons such as contractors going out of business etc. Therefore income details on the return do not agree with HMRC records.

Thanks.

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By Chris Smail
24th Feb 2012 00:44

I would be inclined..

To see how many adjustmens we have had in last two years.

Find cause.

Write back saying all the problems were due to HMRC's unhelpful attitude, however I would be happy to meet with them to discuss how they could change their procedures.

 

But I have not had so yet so it is easy to be [***] sure.

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By ShirleyM
24th Feb 2012 09:15

Maybe this part of the letter is the clue!

To address this we requested that they should remind their clients of their obligation on record keeping to ensure returns are based on kept records. 

We deal with a lot of CIS subbies and many of the new ones don't keep adequate records. We inform them we will work on estimates for one year only and that now they have been informed they need to keep adequate records they will not have an 'excuse' for future years.

Maybe (I am making a big assumption here) you are being too nice to your subbies and if so, they may never bother to keep adequate records unless you get tough with them, and you are now paying the price as HMRC suspect that you don't bother ensuring that your clients keep adequate records?

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By e
19th Mar 2012 15:59

I called them regarding a similar letter I received. They said that they wanted to come in and REVIEW client's files! 

Not sure whether I am supposed to give them access to any files they decide to look at ?....

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