A fishy case goes bad

After untangling an HMRC investigation into a chip shop, Simon Sweetman worries that bad cases like this are becoming more common.

I have just advised on a a worrying HMRC enquiry because of the incoherence with which it was carried out. I do not suppose it to be typical, but it is nearer to typical than one would like.

The affair started as far as I was concerned when I was contacted by an accountant who was confused by the conduct of an enquiry because he was getting post from four or five different places in HMRC.

What had happened was that some three years before, HMRC had started an income tax enquiry into a client’s fish and chip shop, and the inspector had arranged to check the records, which was duly carried out at the agent’s premises. There was no meeting with the taxpayer, because the accountant was unwilling to hold one, and although the inspector made various remarks about the records – many of those remarks inaccurate because of an apparent lack of understanding – he seemed unable to reach a conclusion.

The next thing that happened – about a year into the enquiry – was a VAT visit and observation. When the accountant asked the inspector whether he had asked for this, he claimed to know nothing about it (which turned out not to be true). But what that meant was that now there seemed to be a two-pronged approach, except that it was hard to see where the two prongs came together.

The VAT side came up with some computations based apparently on a very short series of observations one Thursday lunchtime, and put out a demand for £85,000. It turned out that they were also relying on CCTV pictures from cameras owned by the local council.

The inspector came back to life at this point and raised assessments based on the VAT figures, suggesting an addition of £24,000 for the year under review. Although HMRC’s policy is to give one officer ownership of the case, this did not happen, so things became increasingly chaotic...

Continued...

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Comments

CCH cover

davidakime | | Permalink

As no changes made let's hope client had CCH fee protection!!

memyself-eye's picture

observations? CCTV?

memyself-eye | | Permalink

What about bank records, declared takings, owners lifestyle (the BMW parked out back- or not) letters from creditors/banks, number of credit cards held.... a simple P&L exercise might have given them a clue?

How much resource did they devote to this?

It would be like the police 'arresting' just one speeding motorist then impounding the car and taking it apart nut by nut, bolt by bolt, panel by panel in order to find the errant accelerator pedal before charging the driver with exceeding the 30 limit...

 

 

cymraeg_draig's picture

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cymraeg_draig | | Permalink

Total incompetence, muddle, lies, half truths, wild assumptions, - just a typical HMRC investigation.

It will not improve until the standard of staff employed is improved - starting with Hartnett and Strathie (the civil services own Laurel & Hardy).

 

sound particulary bad, but

The Black Knight | | Permalink

We have had vat visits calculating vat using different methods for different quarters, ignoring the only reliable figure in the records, and when questioned and chased, no reply whatsover. then a different vat office not believing that this could happen, until corespondence was forwarded and they too got no reply, eventually all gave up. Our calculation of the vat due was higher than the Vat office too and we told them ! lol

We have had Vat inspectors (who refered to themselves as highly experienced in their field because of 9 months of experience) making statements such as "we can all quote case law at each other but I do not agree with it"

Also Vat officers using different offices and staff, to issue directions, so that the case would be referred to the orriginal case officer for review ! hello ?

What used to be the Inland revenue have not been so bad, most we have found to be reasonable, but seem duty bound to investigate matters we have already put right and disclosed, in order to find no extra tax. Some however we have had to print the revenue manual for and forward or advise that there is more than one sort of loss relief when they only knew of one etc etc, once matters have been refered to someone who does tax the problem is usually resolved, but it is an excercise in keeping your calm while you get through to a sentient being.

Paye is a different matter, they will be belligerent and rude over £200 HMRC errors and especially like issueing PAYE penalties for long since dissolved companies ! hello?

My summation would be that many have been given powers beyond their abilities or knowledge and believe that the power bulldozer approach will work best, (you can almost imagine them chanting "power bulldozer" can't you ? lol)

All in all it makes for a more stressful experience especially when you have to explain to the client that there is an extra accountancy bill.

fish & chip shops

The Black Knight | | Permalink

Incidentally the fish & chip shop we saw the end result of an enquiry on, missed most of the underdeclared takings, and the cash in hand no paye employees, but did pick up on the pretend dividends and S419 liability (as was.)

All in all a pathetic enquiry and the tax evader was still better off by his actions. Hello ?

It come down to keeping records

Anonymous | | Permalink

 I suppose if the business owner had kept his records the VAT & Tax would have been dealt with swiftly. Surely the hardest part of the business is not the bookkeeping or keeping the records in a professional manner.

 

How complicated will it be for them to run Sage or QuickBooks and enter the sales, and purchase orders, or better hire a bookkeeper to do the job,

Or perhaps they could have become computerised and therefore allowed the records to be kept easier.

perhaps the owner of the business needs more control

Anonymous | | Permalink

 There are epos solutions that link directly into Sage that could not only be used to monitor the sales, but also give the owner the peace of mind that they will not have a shortfall in there VA return.

Having a solution that links directly into sage will simplify the process.

However obviously your client still needs to keep proper records.