Another Tax Hell? By Simon Sweetman
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Link to me
Nothing that exciting I am afraid. John P asked me to the post the comment on his behalf.
Level playing field?
"There is something very seriously wrong with our tax system if an individual freelancer or other micro-business has to use the services of an accountant..."
Excuse me for pointing this out, but it was the individual freelancer's record keeping and self assessment that was "seriously wrong". He says he claimed £4,000 of expenses and then agreed that this was 25% too high.
***This posting does not reflect the view of Nichola Ross Martin, it was made on behalf of John who was experiencing technical difficulties***
Judge and jury?
How can anyone debate what is deductible for tax in this case without any detailed knowledge of the claims Mr Morgan made?
I'll second that, however, there is method in the madness:
In other forms of law you are innocent unless proven guilty, and most people do not try and go it alone, they have the right to legal assistance and then they go to court with a solicitor or their solicitor appoints a barrister.
If tax investigations were governed by the same rules, as say, criminal investigations, you would have to request professional assistance even sooner.
I'll accept the challenge!
Nothing I like more than a good read.
Obviously, one does not want to predjudice your case before the Special Commissioners, so any review would have to be "cold" - when the dust has settled.
I am not going to get into the Beckham debate, other than to say that it does not seem unreasonable to read a biog for research. I don't think it is unreasonable of the inspector to question it either. I might have done the same.
Just to add that going to the Special Commissioners is not quite the same as going to the General Commissioners. Whilst the latter is best suited for the unrepresented taxpayer, the former is not. With no knowledge of tax case law and limited experience you may get more than you bargained for.
That Beckham
Only a Martian who has been living in a dust-encrusted hovel for thirteen millenia would want to know why a journalist would want to read a book on Beckham.
If Mike Truman can't work it out then somebody should tell him.
I can paraphrase.
"It is a salutory tale for our age"
I suggest that all the money wasted by tax-inspectors on this matter should be donated by HMRC for the acquistion of the work for the school curriculum.
The fact that it is dismally written merely adds to its piquancy.
From Hell - www.tax-hell.co.uk To Mike Truman
Mike said, "Nick, what was your reason for buying the Beckham biography, and what was your original answer when asked about it by the investigating officer? Do you have any published articles on celebrities or on football that make this a reasonable research purchase?"
The full Beckhamgate details are here, http://web.mac.com/nickmorgan/HMRC/beckham.html
"And would you like to comment on the way you have used the email from the investigating officer in your article where she said that she was out of her depth? As I set out below, you use it in a way that allows people to infer she was saying she was out of her depth in the investigation; in fact she was talking to a press officer and saying she was out of her depth in dealing with the media storm you were generating. The two are very different things."
The HMRC investigating officer Jacqui Lamper made that comment before the "media storm" so what you are saying cannot be true. I believe she was out of her depth on many levels. She has since changed jobs.
"And, just to make things even more interesting, what about this (subject to any sub judice problems caused by the impending (?) Special Commissioners' hearing). You've got your full file. Why don't you waive your rights to confidentiality, and let AWeb and Taxation magazine jointly arrange to have it looked at by independent tax investigations specialists, to see what they think of both your arguments and those of HMRC? We could both write up the results, so that our respective readers would be able to see what had really happened."
I'm happy for any tax professional to have a look at my file and comment on it publicly. I should warn you that it is now two house bricks thick and to make any sort of valid judgement you would need to read the whole thing very carefully.
Nick
Let's ask Nick...
Gareth, since Nick has joined us, let's ask him. Nick, what was your reason for buying the Beckham biography, and what was your original answer when asked about it by the investigating officer? Do you have any published articles on celebrities or on football that make this a reasonable research purchase?
And would you like to comment on the way you have used the email from the investigating officer in your article where she said that she was out of her depth? As I set out below, you use it in a way that allows people to infer she was saying she was out of her depth in the investigation; in fact she was talking to a press officer and saying she was out of her depth in dealing with the media storm you were generating. The two are very different things.
And, just to make things even more interesting, what about this (subject to any sub judice problems caused by the impending (?) Special Commissioners' hearing). You've got your full file. Why don't you waive your rights to confidentiality, and let AWeb and Taxation magazine jointly arrange to have it looked at by independent tax investigations specialists, to see what they think of both your arguments and those of HMRC? We could both write up the results, so that our respective readers would be able to see what had really happened.
Mike Truman
Editor, Taxation magazine
Mike Truman - Extrapolation to the Absurd
Mike has extrapolated to the absurd and as expected has reached an absurd conclusion.
The answer to his point is given by the story about the poor soul that was advised to acquiese on their motor vehicle related expenses, when they should have done no such thing.
Perhaps the revenue (perhaps they don't have the foggiest) have some sort of benchmark about what is reasonable as a "research" budget for journalistic activity. If a "journalist" is within the parameters defined as "reasonable" then why bother wasting valuable taxpayers' money harrassing the taxpayer?
If the journalist is significantly outside these parameters then as you suggest it is fair enough to enquire but really why waste time over one book? Is that what you the taxpayer want your money spent on?
The role of professional advisor is therefore to ensure that
1 The taxpayer knows how to substantiate any genuine income or expense
2 Given that robust substantiation of geniune business activity exists, back the taxpayer to the hilt.
but
However we need to bear in mind that there is legislation about record keeping for tax purposes. Most taxpayers come unstuck because they have not actually complied with the law (possibly because they don't know about it). The self assessment system (whose idea was that ?) puts the onus on the taxpayer to get it right and to have the evidence to demonstrate it. That I think is where we get "guilty until proven innocent".
Nichola -
If tax enquiries followed the same principles as criminal court cases, not only would you be innocent until proved guilty (beyond reasonable doubt) but - at least in theory - your costs would be awarded against the prosecution if they fail to prove their case. As it is, the tax system runs in a 'heads we win, tails you lose' way - if you want professional representation, it is at your own cost and HMRC will never pay any part of that cost, however misguided or malicious their actions. Unless of course, it comes to court hearings, when normal judicial system rules come into play.
representation
If I can add something, I entirely agree that it ought to be unnecessary for a taxpayer to have to employ a professional for an enquiry, but despite all attempts so far to change it the system remains adversarial (like the law courts and Parliament in the UK - we seem to be hard wired for it) and that means using hired help.
Tax Hell
Interesting comments, I think it's worth pointing out that the best tax advisors may not see much in the way of HMRC belligerence as it's only the unrepresented and the poorly represented that get a real hammering. Talk to the good people at TaxAid if you want to get some real HMRC horror stories. See the site at http://www.tax-hell.co.uk and The Sunday Times piece is herehttp://business.timesonline.co.uk/tol/business/money/tax/article3688559.ece . The version that names the names of the inspectors involved is here http://web.mac.com/nickmorgan/HMRC/sunday_times.html . Is it wrong to name the inspectors in this case and to also put recordings up on the web? Well perhaps that should be the subject of a different article.
Antony -
While I understand perfectly well that it may be considered wise for a taxpayer to be represented in a tax enquiry, this does not make it right, that you then incur a definite (possible quite large, and certainly unrecoverable) expense even if you are totally innocent and have no additional tax to pay.
Of course accountants are going to recommend that a taxpayer should be represented by an accountant. However, this is a sticking-plaster solution that benefits mainly the accountants, rather than a real solution which would be thorough reform of the taxation system and the method of tax administration.
The vast majority of taxpayers should be able to determine their tax liability without having to pay for professional help. The need for enquiries should then also be much less, and enquiries should not be done by the same organisation that is simultaneously charged with the task of maximising tax revenues it collects.
UNfair amount
Louise - your contact should engage a better accountant and claim back the erroneous tax !! (plus interest)
On the wider issue - if I take a training course, I have to be able to prove that I believed at the time that I would make use of the course content, otherwise does that mean I went on it "for enjoyment" and hence not be able to claim it as an expense ?
[Notes on appropriate diary page, "Believe I will find this course / book on The Beckams useful in my work" - Done !!]
In the wake of the income shifting mental gymnastics, that sounds not unreasonable !!!
;-)
Deductible books!
I'm glad to see that, since I am a journalist (mostly employed but with a bit of freelance income as well) I am, according to Gareth, allowed to deduct all my expenditure on books, since neither I nor the tax inspector has any idea whether what I'm reading will spark off an interesting idea for an article. Since, given what I spend it on, I might just as well have a large part of my salary paid in book tokens, that is very welcome.
Let's see now, where's my latest bill from Waterstones?. Iain M Banks, 'Matter'. Can't quite see how an SF book set in a time when (at least for most of the species involved) money has ceased to exist is relevant to tax, but who knows? Gareth says I can claim it. What else? 'A short history of tractors in Ukrainian' - maybe I can do an article on how the story would have continued after the changes to capital allowances? Anyone but Gareth think I'm going to get away with that?
Nick Morgan's own article says that the question posed to him was “Are there any documents to show that you purchased the David Beckham book in the belief that you would get to interview him? Otherwise there is nothing that shows it was not purchased for your own enjoyment.” Seems a perfectly sensible question and inference to draw.
Mike Truman
"Professional" advice doesn't always help though.....
I have a friend who recently told me about an investigation she had a few years ago before I knew her. An inspector had claimed that deductions for motoring were too high, and that a proportion of the expenses for their van should have been disallowed as private. My friend and her husband were running a cleaning business, and had a van for work, and a car for private use, so they didn't use the van for private purposes as it was always full of cleaning materials, buckets, ladders etc. Despite having always employed a qualified accountant, he advised them to just agree to the inspectors demands (even though he had prepared the accounts that were under investigation), as it would be easier all round, and she was unwell at the time so didn't need the added hassle of taking on her accountant as well as the tax man. Unfortunately, by the time the inspector had gone back 6 years, added penalties, interest and the like, they had to remortgage their home to pay the final demand. All because they received poor advice - after all, if the van really was 100% business use, which she is adamant that it was, they should have stuck to their guns. The worst bit is, she is still with the same accountant, even though she blames him entirely for the position they are in now, and realises he was well out of his depth with even a simple investigation!! I have of course advised to her to now go elsewhere.....
Professional Help
I have dealt with many enquiries and I have seen a lot of Inspectors out there that are far too aggresive and often try and side step the adviser to put stress on the tax payer.
I always think having an adviser who is familiar with enquires will minimise the stress on the tax payer and of course help minimise any tax and pernalties.
The Whole Point and Nothing but the Point
Simon says:-
"Journalists don’t always seem to get the tone right. He goes on at some length about the Inspector wanting to refuse him the cost of David Beckham’s autobiography which he needed for research (though what you could find out from it other than the utter meaninglessness of life in the fast lane today, I am not sure) but as the alternative proposed by the Inspector was that he might be reading it for enjoyment, I don’t think that stacked up either."
Why does a journalist need an accountant to help him to tell the HMRC why he has read a book? Any book. If he was a plumber it might be different (but pointless) but even then I'm sure there's a significant body of professional literature that would be appropriate. Surely an alternative definition of earning a living as a journalist would be getting paid for reading and writing. How do you know Simon whether or not Beckham's book did or did not stimulate some particularly worthwhile train of thought and if it didn't how would you know before the book was read by the reader?
You don't and neither does the goon from the HMRC. Do we therefore empower the Inspectors with brain scanners? Are the HMRC to become the sole arbiters of artistic and professional merit expressed in the written word?
As others have pointed out
1 The relevant legislation is out of control
2 The contract between the taxpayer and the state has been and continues to be subject to significant abuse by the state
3 The HMRC is full of people trying to justify their employment as worthless apparatchiks
Orwell as always was right
quite so, Nichola.
My point is that if the rules are clearly defined then the taxpayer ought to know whether an expense is allowable or not, and it should never have to be a matter for "negotiation" with an inspector during an enquiry.
Either there is a "right amount of tax" (and someone independent to monitor it if necessary) or there is open season on individuals and small businesses, for HMRC to use threats, to extract tax that is not owed plus penalties that are not deserved. It is not good enough to say that the individual, freelancer, or microcompany ought to have an accountant to represent them in an enquiry. It should not be necessary for them to be represented.
The increasing government trend of deliberately confusing evasion and avoidance, and of writing ever more tax law, in ever more complex language, with increasing amounts open to non-statutory "guidance", to tax inspectors' discretion, and subjective opinion, is going in totally the wrong direction. The draft "income-shifting" rules were a classic example of all of these rolled together.
Pseudonym ?
Excuse me, John P, but why the link to Nichola Ross Martin's details ... or is there something you aren't telling us ?!
well, not exactly
He says he claimed £4,000 of expenses and then agreed that this was 25% too high.
I quote from that taxpayer's schedule of events (http://web.mac.com/nickmorgan/HMRC/schedule.html) :-
10) 25 April 2006 - S Coomber offered a figure of £1,000 as a global settlement for NM’s expenses - this was unrealistic because it ignored a large number of valid expense receipts. On 1 June 2006 J Lamper increased this to £2,500 then on 14 November 2006 she increased it again to £3,000, which NM accepted. J Lamper has now reneged on this agreement.
That seems to me more like NM caving in to HMRC bullying than the £4000 expenses actually being '25% too high'. Of course I don't know the full details, and don't know if some of the claimed expenses might not have been allowable. Merely that this sort of (one-sided) horsetrading to arrive at an eventual 'agreed' tax liability is really not the way things ought to work. And the blame lies with those who define and those who administer the tax system.
If tax were simpler, more clearly defined, and more objectively administered, there would be less scope - and probably less incentive - for people to exploit 'grey areas' and 'loopholes'.
As it is, it is almost a point of honour among many taxpayers to get away with paying as little tax as they possibly can - and even more, among many accountants, to help them, by exploiting all the grey areas and loopholes. Quite understandable in such a one-sided system where HMRC hold most of the cards, but such a waste of everyone's time and money.
professional help ?
...and it still didn’t occur to him he might need professional help.
There is something very seriously wrong with our tax system if an individual freelancer or other micro-business has to use the services of an accountant. If you are running your business properly, and your affairs are fairly simple (e.g. no export sales, currency dealing, or other such complications) then you should be able to understand the rules and pay the right amount of tax as defined in law. You might miss out on a clever dodge or two that could save a few pounds in tax - but at the same time you're saving a few hundred a year in fees (even in the simplest cases). It seems to me - as you say lower down - that HMRC inspectors are exploiting the asymmetric relationship to bully people into paying the wrong amount of tax. The solution should not be to suggest that the taxpayer needs to be represented, but that he/she/it (could be a company) needs to be protected from the bullying. That seems to be the main purpose of the accountant in a tax enquiry. A few simple changes might achieve this.
(1) assumption of innocence unless proven guilty - the burden of proof should be on HMRC.
(2) tax enquiries should be done by a body independent of HMRC and government, and whose remit does NOT include the maximisation of tax take.
(3) If HMRC is found to be at fault, then compensation to the taxpayer should take the form of penalties exactly equal to those which the taxpayer must pay.
(4) If HMRC is found to be at fault due to the improper actions of identifiable individuals, then disciplinary action should be swift and automatic.
That might go some way to levelling the playing field.
So ....
... if I want to shop my neighbour as a tax cheat on a confidential basis, is my identity safe from an application by the investigatee under DPA?
Did AWeb/Taxation ever get around to doing the indipendent study that Nicola offered to do "cold", after the commissioner? What was the end result?