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HMRC attempt to steamroller through taxpayers' rights?

HMRC attempt to steamroller through taxpayers'...

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HMRC have been querying closing WIP (2008 SA Tax Return) for a client, to the extent of even wanting an analysis, and after some correspondence, the inspector is now willing to accept the closing WIP figures, provided he is sent details of the opening WIP amounts:

"In order that a comparison of the closing figure of WIP can be made with the opening figure, would you please let me have a statement of this opening figure. Once a comparison can be made, and if they are comparable to the year end figures, then I will be able to accepty the position as presented.

The issue here is that the previous year's tax return (2007 SA Tax Return) was filed with provisional figures of self-employed profits and the enquiry window for that year closed some time ago. I have previously refused the inspector's inquiry to see earlier years' accounts on the basis that his request was made out of time. [For the record, it should be noted that the accounts have been completed and the final profit figures (which have not been sent to HMRC) agree with the provisional ones filed, so there is no loss of tax to the public purse.]

Since, in my opinion, requesting details of the opening WIP is the same as asking for details of the previous years' closing WIP, this seems just a ruse to look at information to which he is not entitled, as he is surely time-barred from making enquiries into that year without a TMA 1970 s29 Discovery assessment.

HMRC Enquiry Manual at EM5175 states "if you do not take action within the 12 month enquiry period you will have difficulty in making a discovery assessment unless you obtain further information to suggest the provisional figure is incorrect."

Clearly this inspector is pushing the envelope as I have never heard anything so ridiculous in over 30 years of practice as wanting to know about an analysis of WIP or stock figures, let alone wanting to compare one year to the next.

Although I have no wish to be confrontational, neither am I going to allow HMRC to deny clients their rights.

My feelings are that if he persists in wanting this information, I would advise him that I want the case escalated to a higher authority, whomsoever that may be.

He still wants to see the previous year's accounts before closing down his enquiry and I think he is wrong. I am not racking up the hours to inflate my fees as this is a pro bono case and therefore no fees are involved.

Am I being overly protective here or is my proposed course of action correct?

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07th Dec 2009 14:59

jobsworth

The opening WIP figure is on this years accounts, and therefore could be argued not to be out of time. He is, I suggest, entitled to an analysis of opening balances in exactly the same way that he is entitled to analysis of closing ones.

 

It is difficult however, to see why he is bothering. Any alteration in the opening figure would potentially increase this years tax liability, but, would require an identical alteration in last years closing figure therefore reducing tax liability.  Net result over the 2 years - probably zero.

 

Seems you have come across one of the "jobsworths" within HMRC - just send him the analysis and tel him to stop wasting your time.  

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07th Dec 2009 15:37

WIPping into line

Possibly his interest arises from an unwillingess to disclose this info.  I don't really see the problem in providing this and if he feels the urge to make a trends comparison in WIP from one year-end to the next, how is he supposed to do this if each year's WIP is only accessible on that Return?  Open enquiries into both years?  It wouldn't be unreasonable to want to know Opening and Closing Stock would it?  So what's special about WIP?

He may be going through this thought process and concluding that resistance implies that there is something there that he'd really like to know about. 

But then I've always taken the view that harmless information should be provided to HMRC whether they're entitled to it or not.

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07th Dec 2009 18:36

Job's worth?

Hmm, I would just provide him with a break down of the opening balance, he has the power to check out current year figures after all.

A new Virtual Tax service for accountants. Visit www.rossmartin.co.uk

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07th Dec 2009 23:02

jobsworth definition
Job's worth?

Hmm, I would just provide him with a break down of the opening balance, he has the power to check out current year figures after all.

 

Posted by Nichola Ross Martin on Mon, 07/12/2009 - 18:36

 

 

Definition of a "jobsworth" - someone who excercises power simply "because he can" even though it will serve no useful purpose.

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By Anonymous
08th Dec 2009 09:23

Jobsworth Revisited

Surely the word derives from the phrase:

'It's more than my job's worth....' [to act in the way you suggest]

So the word does not connote someone who revels in the exercise of power. Precisely the opposite in fact. It's someone who has no confidence in his power to do his job according to his own judgement. Thus he will tends to hides behind the instructions given by his superiors, even wherethe preformance of those instructions produces an absurd result.

Anyway, back to the main point. It is not true that adjusting WIP makes no difference. It clearly affects the timing of payment of tax. If it's too high you'll pay your tax too early. Too low and you'll unjustifiably delay payment. And yes, HMRC will take interest and a penalty for an incorrect return if the figures justify it, even though (you will argue) it's only a timing adjustment.

You could after all argue that murder is only a timing adjustment. The victim would have died in due course anyway.

 

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08th Dec 2009 09:29

pedantic

It seems that someone is determined to be pedantic.  In any case I have yet to encounter a Revenue officer with sufficient knowledge to be able to accurately place a value on work in progress.

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By SimonP
08th Dec 2009 10:12

What do HMRC know about accounting?

"In any case I have yet to encounter a Revenue officer with sufficient knowledge to be able to accurately place a value on work in progress." Welsh Dragon makes a good point. Which is probably why HMRC issued IR233 (2003/04) which stated that "work-in-progress, like stock, is an accounting concept. It is not for the Revenue to determine how to value it." That Helpsheet has conveniently been discontinued, however, I do not believe HMRC's view has altered since then.

Which makes it all the more puzzling as to why this inspector is going down this route.

I know for a fact that the WIP has been OVERstated, so as to err on the side of caution. Fortunately there is no law that prohibits taxpayers from overpaying tax. There is no problem in being able to produce what the inspector wants, the question is whether or not he is entitled to it. It would be more than my "jobsworth" not to challenge the validity of his request.

Incidentally, the definition of muder being just a matter of timing adjustment is priceless. The author surely deserves recognition. Nice one.

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By Anonymous
08th Dec 2009 10:22

HMRC Inspectors know nothing about Accountancy

That's why HMRC employs qualified accountants to advise their inspectors.

If it's an accountancy argument and the inspector seems to be out of his/her depth, ask if the issue has been referred to an accountant.

A word of warning though. Make sure you're absolutely in the right before you do this.

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08th Dec 2009 10:55

On tax investigation courses ...

... I was usually advised to resist attempts by HMRC to overstep their authority, to "keep them honest" or "pour encourager les autres" or however you want to put it.  Let them think that you are an easy mark and they will continue to take liberties, and so on.  The lecturers appeared to be of a consistent mind.

So I think the OP is right to question whether the information falls within their remit, however easy it might be to submit the information.

With kind regards

Clint Westwood

 

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08th Dec 2009 11:45

Is he only enquiring about WIP ?

Is WIP the only item questioned, or has this Inspector already looked at other aspects and found nothing?

I ask this because it is common once an enquiry is started for inspectors to desparately embark on blatant fishing expeditions in the hope of finding something, anything, to justify their initial actions.

We always insist upon an explanation of exactly what is apparently troubling the Inspector to cause the commencement of an enquiry.  

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