Tax enquiry

An anonymous member disclosed [1] that a tax inspector had asked if a married couple, both with open tax enquiries, both with the same questions and both with the same documents (50/50 split on everything) would be happy to have their tax enquiry dealt with together. The member did not think that the enquiry would be complicated, and expected it to be closed down very quickly. However with HMRC one never knows!

Tony Willetts considered that, from the information given, it would appear that the inspector is simply trying to move things along quickly, which would be to everyone’s benefit. However there is no obligation for the clients to agree to the proposal. They both have a right to be dealt with separately if they wish.

There is, of course, the possibility that one partner to the marriage has a source of income that the other is not aware of, and dealing with the enquiries together would obviously reveal this source of income to the other partner. However, the inspector would be well aware of this aspect, and would not be asking for a joint enquiry if this was the case.

This case highlights the problems that practitioners face when the inspector does not have to disclose the reasons for opening the enquiry in the first place. If the tax adviser knew what specific issues HMRC was concerned about, the practitioner could make a judgment on whether the clients should be dealt with separately or together. Ken Curran underlined this point and suggested that the inspector should be asked the reason for the enquiry.

Tony suggested that, in this case, he would be tempted to get in touch with the inspector to voice his concerns, asking what assurance could be given as regards the individual rights of the clients to confidentiality. If the inspector is genuinely just trying to save everyone’s time they may well have to give a few clues as to what they are looking for specifically in order to give such an assurance.

I agree with the remarks made by both Tony and Ken. This is a most unusual case. Another relevant point is that the clients should be asked their reaction to the request for a joint investigation. In order to protect the tax adviser, the clients should be asked to sign their agreement to the joint enquiry. In these days of litigation and claims for compensation, this is the least that should be done. One always has to have the PII policy in mind in such cases.

Normally I would not advise the clients to agree to a joint enquiry. Anecdotal evidence suggests that the female married partner has an average of £20,000 saved and invested which the other partner is not aware of. Automatic agreement to a joint enquiry in such cases could open a ‘can of worms’, quite apart from the loss of the clients, claims for compensation, complaints to the professional institute and litigation.

Newth Talks Tax Archive [2]