Tax enquiry

Tax enquiry

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Clients return under enquiry.
Low income tradesman.
After much correspondence the inspector has identified approx 500 miles of "unaccounted for" miles travelled in the year. (using assumed miles per job invoiced, assumed petrol consumption etc - in other words very theoretical).
In the year in question the domestic expenditure exceeds clients funds available from business by less than £2k. Also in that year our client had a lady friend living with him, fully employed and contributing to the household budget. Of course no records were kept of this arrangement but £2k is not a great deal.
The inspector is refusing to accept that this arrangement explains the discrepancy stating that he would not want to demand eg ex girlfriends bank statements etc but could if the client wants to rely on this.
The inspector has calculated extra sales using a fraction based on the "extra" miles against theoretical business miles and come up with what I consider to be a very dubious figure.
Not only that he wants to then extrapolate back two years and increase those earlier years.
As with all these small cases time is racking up and I could do with some inspiration. Ideas please?
knuckles

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By AnonymousUser
21st Sep 2004 14:30

Fathings Steak Houses comes to mind. The IR should not rely on Business Economics Exercises (the mileage alone).

OK, in this case they would probably argue they are not relying on that alone as they have a means test of sorts which shows a discrepancy, but not to take into account the common law partner is a not really credible.

We had a mirror of this case around three years ago. IR looked at the records of the business, carried out a business economics exercise, and came up with £xx owed.

We pointed out that their exercise was very nice, but some of the assumptions were just that, assumptions, oh and by the way, that undelcared income you claim to have found - er, thats the vat output tax. Undaunted the IR change the BE figures 3 or 4 times, we re-but them each time, so they graciously closed the enquiry and less graciously amended the return for some silly figure plus a scale back for the previous year.

We asked the Clerk to the General Commissioners to list the case, the date came through, and then came the phone call from the manger at the tax office "We don't think we've got enough evidence to take this to the Commissioners. We really are not happy with your clients records, and beleive there is income undeclared, but our case isn't strong enough. We'll vacate the amenedments.".

So, the lesson, as we see time and time again with the IR, is stand up to them. I think you will need to evidence the common law partners contributions, or at least put on a firm footing what they would have been, eg "1/2 the groceries + the tv licence". Then be prepared to call the IRs bluff and visit the General Commissioners. Generally, the Commissioners are fair and unbiased, and if you can evidence your assertions, point out the holes in the IRs, and throw in bits like Fathings, you should have a reasonable chance of succsess.

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By Sherlock
21st Sep 2004 11:12

evidence
Sorry, but you have two choices. Either provide some credible evidence from the lady friend and be prepared to go to the Commissioners or accept the inspector's assertions on commercial grounds.

This sort of case illustrates the importance of having professional fee insurance for small clients of this size, but unfortunately in this case presumably there is no cover and 'the horse has already bolted'.

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