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Newth Talks Tax - Tax writer of the year John Newth solves your tax questions

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26th Mar 2007
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**For more of John Newth's exclusive contributions, visit the Newthwire archive***
https://www.accountingweb.co.uk/newthwire

Professional fees on an investigation

Alan Kitson asked whether there was any chance of recovering from HMRC, professional fees incurred by a client in an investigation, in his query of 10 November 2006.

The client was a food retailer at boot sales who had been selected for investigation by the Joint Shadow Economy Unit. The client had been investigated five years previously, and the inspector could not find the original investigation papers. The professional adviser provided all information required at the initial meeting, and followed this up with other details supplied in correspondence.

Eventually the inspector suggested that the client should ‘self invigilate’ by keeping records for one particular Sunday. The inference was that the inspector would attend on that day, but the letter also included questions that could have been asked at the initial meting. There was also an incorrect assertion that the client had been working one day because he purchased petrol at 7.30am. This was refuted.

The advisers then objected to the conduct of the investigation, as it appeared to lack direction, and HMRC closed the enquiry without any addition to profits. Is it considered that the client has a valid claim for refund of professional fees, and how should this be achieved?

Doug Scott considered that one could try, but held out no high hopes that a refund could be obtained from HMRC. However, at the least the professional fees could be a valid tax deduction, as no additions to profits had been made.

It is, of course, closing the stable door after the horse has bolted, but is a pity that the client had not held professional expenses insurance for tax enquiries and investigations.

I think that there is no harm in attempting to try and recover costs in this case, particularly as the advisers have objected to the conduct of the investigation and are in effect saying that maladministration has occurred.

The client must be billed first and the fee must actually be paid and receipted. The first port of call is the office of HMRC that dealt with the case, initially perhaps the inspector in charge of that office. If this fails (and it is likely to) then the complaint should proceed to the area manager of the HMRC, or the Area Complaints Department.

If satisfaction is not received at this point, the next port of call is the Adjudicator. This office has the power to recommend an apology, refund of professional fees and a consolatory payment to the client in agreed cases. The matter could then proceed to the Parliamentary Commissioner (Ombudsman) through the client’s MP. Complaints made to the Adjudicator may proceed to the Ombudsman, but not vice versa.

I think that there is a reasonable chance of some success with the Adjudicator’s office. The HMRC offices are, however, likely to back their investigating personnel.

Previous editions:

Golden hello

Employment status professional sportsmen/women

Tax on pastors

Marginal rate of income tax

Allowable Schedule D Expense?

Newth Talks Tax - Pool car

Newth Talks Tax - Tax assessment

Newth Talks Tax - Revenue powers

Newth Talks Tax - No accounts submitted to IR for 10 years

Newth Talks Tax - Inland Revenue – Gone fishing?

Newth Talks Tax - New client wishing to come clean

Newth Talks Tax - PPR relief and lettings relief

Newth Talks Tax - Self/employed shareholder

Newth Talks Tax - Salary sacrifice for exam re-sit fees

Newth Talks Tax - PPR – Two houses owned

Newth Talks Tax - Employed – Not self employed

Newth Talks Tax - Hotels and the PPR exemption

Newth Talks Tax - CGT implications of PPR/letting

Newth Talks Tax - Handling the inspector

Newth Talks Tax - GPs receipt of donations

Newth Talks Tax - Capital allowances

Newth Talks Tax - October

Newth Talks Tax - September

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