Revenue Enquires into Accountancy Practice

Revenue Enquires into Accountancy Practice

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In a recent article by Rebecca Benneyworth she heralds the arrival of the new HMRC Charter (even if only in draft form) as a significant step “in changing the attitude to tax compliance”. I have to be honest, I too believe that there is a current sea change going on at HMRC concerning tax compliance but it is slightly more sinister than the well meaning document mentioned above.

My firm has recently become subject of a Revenue examination of our methods due to a larger than average refund claim and (I can only assume) a lower than average tax yield. I have spoken to other firms currently experiencing the same review, and there seems to be little in mind for the Tax Inspector except proving that which the risk assessment software has already determined.

The Entertainment industry provides the main bulk of our clients and even though everyone seems to understand the notion of an actor ‘resting’, there is no understanding (as far as HMRC are concerned) of how this will reflect in that individual’s tax return. A large percentage of those who venture into the world of film and television will, sadly, take time to achieve their goals, if at all. Often this translates into little income being generated from a larger expense, subsidised by a part time PAYE job.

If someone who is a struggling actor or camera operator either gets few jobs or works for nothing to ‘get their foot in the door’, surely there is a chance that expense might outweigh income. As with any business who spends more than they earn they will, therefore, post a loss at the year end. As this loss is then shown on the tax return and offset against other tax paid, then naturally there could possibly be a repayment due.

We are currently handling approximately 80 new enquiries set up by this revenue review, all of which display “significant claims of expenses not wholly and exclusively for business” as well as “an abuse of WIP” and to top it off “a failure to keep proper books and records”. All of this determined by HMRC risk assessment software before a single piece of evidence has been asked for. It is truly staggering what computers can do these days! It has been suggested to us, however, that if we take a sample of 300 or so tax returns out of our 5,500 submitted and reduce the refund or increase the tax then all of this will go away.

Rather than attack clients and their agents for filing a return according to current rules, why doesn’t the Treasury just change the rules and ban a loss from one job being offset against another in the same year. It is also desperately tedious having the argument about wholly and exclusively with a Tax Inspector when the client makes documentaries about travel. Of course he is going to travel and no he doesn’t take seven holidays each year!

If our firm is found to be misrepresenting figures and to the scale that HMRC suggest then we deserve all that is coming to us. If on the other hand we are proven not to be the doers of all things evil, I wonder if HMRC will have to good grace to offer an apology and learn that computers don’t know everything or will they just move onto another unsuspecting firm and try it on with them?

Is anyone else experiencing the same broad brush approach or are we just the lucky one’s?

Jon Lunn

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By billgilcom
17th Feb 2009 12:45

Representative cases....
You say that this is an enquiry into the Accountancy Practice but I assume that it is not an accountancy unit of HMRC that is looking at your practices - and which you should be taking specialist personal advice on - but a specialist entertainment unit review that happens to have loads of cases with you as you specialise in such cases?

Mind you it probably is a situation that you might need a second opinion on in case your livelihood is put in jeopardy if they are going to get results in 300 cases.

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By Accounting WEB
12th Feb 2009 15:04

Impartial?
I couldn't agree more so far as HMRC having a job to do, my issue is one of a hope that it is a review and not an atempt at leaning on a practice to have a quick result in a large number of cases. At our meeting with HMRC thy did say we could amend around 300 and our current problems with them will go away.

A little too Ronnie & Reggie Kray for my liking. Thanks for the advice re an indipendant review.

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By User deleted
12th Feb 2009 14:39

Tread Carefully
Jon

I am not being negative, but you should refer to an enquiry specialist who will be able to help. This should be one of the top four accounting practices who will have experience of this sort of enquiry. Your livelihood is at stake do not scrimp unnecessarily. In the current economic climate you may be able to come to a deal with them over fees.

HM Revenue & Customs have obviously targetted you, as their software has picked up anomolies within your client base. Which you have admitted. You may have got things right for these clients, but on the other hand you may have misinterpreted legislation etc., An independent review by an external/third party may be able to assist. You may be too close to the issues to form an independent view.

I have seen similar things happen to other accountants with devastating results. Good luck.

As for an apology, ask Ken Dodd and his views on HM Revenue & Customs and in particular Dave Hartnett. It is unlikely HM Revenue & Customs will provide one. They are after all only doing their job! HMRC are attempting to plug the gap in the public purse as much as possible and tax refunds/tax strategies will be high on their list.

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