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They’re still not happy with <i>that</i> service company question

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19th Sep 2008
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Despite issuing more guidance on the service company question on the SA tax return (at long last) HMRC has failed to silence its critics in respect of the motivation behind asking the question in the first instance and its actual legality in terms of the taxes acts.

Barrister Keith Gordon, commenting on the new guidance says "The question is unlawful." Writing in this week’s Taxation magazine he explains that he is still not going to answer the question. He suggests that the purpose of a tax return per s 8(1) TMA 1970 is for the purpose of establishing an individuals taxable income and capital gains in a year of assessment. The service company question doesn’t do that, and it does not tally with any aspect of the tax code.

AccountingWEB.co.uk's Nichola Ross Martin says that he "Makes a valid point, dividends are dividends and are taxed as dividends and reported elsewhere in the tax return, employment income is likewise reported on the employment pages. As far as we are all aware HMRC has not changed its interpretation of ITEPA and dividends. The need or indeed point of further analysis of income, other than for some sort of statistical purposes is on somewhat shaky ground too. Any data gathered in this exercise is going to be far from complete."

Taxpayers who have already submitted their SA returns are told by HMRC that 'there will be no adverse consequences simply because you completed (or left blank) the question in return filed prior to today's date'.

George Bull, head of tax at Baker Tilly, writing in the firm’s weekly tax brief asks “Does this mean that the answer to the same question will be interpreted differently depending on when it was filed, or that the question serves no purpose and the answer will be ignored?”

An accountant (who wants to remain anonymous) asks, “What are we supposed to do with those returns already sent out for client approval which are now incomplete following the latest guidance. Ask the client to return them to us and then complete page TR4, and then send it back for re-approval? It’s a waste of my time and everyone’s time. Someone needs to bang the collective heads of HMRC’s management together, but I doubt even then we’ll see any sense.”

Rosie @ Wiltshire commenting on the new guidance has inadvertently possibly got the answer to the whole problem- in response to HMRC's advice on returns already she filed, she says "Yes, but, what is "today's date."

HMRC, it seems, have failed to provide an actual date...

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Replies (4)

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By User deleted
22nd Sep 2008 17:57

Covering letter for disclosure
...but we all (many of us because we are being required to) file on line now, we don't send covering letters!!

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By billgilcom
19th Sep 2008 17:46

So next year........
they will insert another question in all the company returns that will enable them to use their computer analysis tools - inadequate as they have always been - to filter out all the people (or should it be filter in) that they can now investigate once they achieve retrospect legislation to add more money into GB's coffers. A tax return is a document that is supposed to establish THAT person's tax liabilities and not those of connected person's. Mind you I suppose if you answer the question honestly and fully on the company tax return there could never me any discovery in the future regarding a director's earnings/dividends - no longer will HMRC be able to hide behind the defence that something entered on one person's tax return held "somewhere in their vaults" has no relevance to another's
http://www.wamstaxltd.com

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By JSJ54
19th Sep 2008 17:38

Now that is clever Keith
Thanks I shall be using the white space.

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By User deleted
19th Sep 2008 12:46

It might not be just the service co question
Since writing my original article, I have been referred to other questions on the tax return that could be susceptible to a similar challenge - at least this year.

For example, the additional questions on the non-residents' pages concerning the number of days in the UK.

In short, a return is intended to establish a person's liability to tax not to provide filters so that HMRC can identify whom to investigate.

On the other hand, advisers should not forget the considerable advantages in providing full information on a return so as to reduce the risks of a discovery assessment (or to increase the chances of being able to challenge such a discovery assessment).

However, my advice would be to provide all such information in a white-space disclosure/covering letter, rather than in boxes that are undoubtedly linked to HMRC's risk-assessment software.

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