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HMRC Discovery/enquiry

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HMRC have issued a 'Check of Tax Calculation for the year ended 5 April 2016, 5 April 2017 and 5 April 2018' on the basis that under the automatic exchange of information my client has underdeclared foreign income in 2016/17. Although the letter is out of time for 2016 and 2017 if we do not cooperate, HMRC advise they will assess under the discovery provisions S29 tma 1970. They give a figure of what they belive the correct figure for one particular holding should be for the year ended 5 April 2017. There is no mention of an undepayment for the otehr two years 5 April 2016 and 5 April 2018. So on the face of it, it would appear that it is just one amount that may be incorrect on the 2016/17 tax return. However in the 'schedule of information needed' attached to the back of the letter, they are asking for full breakdown of all income received both in the UK and worldwide for all 3 years. My client is non dom but pays tax on world income and does not claim remittance basis. Can HMRC ask for all this info for all 3 years even though their discovery appears to relate to one source of foreign income in 2016/17? They probably can for 2018 as within the enquiry window but what about the other years? they are basically asking for a breakdown of all figures shown on all tax returns.

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By SteLacca
11th Jun 2019 09:51

Of course they can, just as your client can refuse and force HMRC's hand. Surely you already have the necessary breakdown from when you prepared the Returns, so why play silly buggers and potentially incur higher penalties for your client than is necessary?

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By chicken farmer
11th Jun 2019 10:24

Suggest you read the decision in Keith Hunter v HMRC. [2019] UKFTT 0312.

You have not actually told us whether the income declared for 2016-17 was understated or not. Surely this is the first thing you should clarify with your client?

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By pauld
11th Jun 2019 10:29

Stelacca - thanks for your reply. I have every intention of providing the information in respect of their discovery figure as they will only use S29 if we don't. But can they really ask for everything else shown on the return which has nothing to do with the discovery? It is a huge return including 20 rented props, many directorships, a sole trade, interest in partnerships etc etc etc. They have about as much relevance to the discovery as my clients pet hamster.

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By pauld
11th Jun 2019 11:07

Chicken farmer - thanks for the case details. Having looked at this, it seems that HMRC can ask for any info they want, including the name of my clients pet hamster, and if the taxpayer does not comply, then they can just issue an Information Notice under Schedule 36 to get it. Sounds like no protection for the taxpayer at all.

Client overseas at the moment and waiting for him to come back to me with confirmation of foreign income.

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Replying to pauld:
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By chicken farmer
11th Jun 2019 11:36

No, if a return has been submitted for a particular year, a Sch 36 notice can only be issued if a s.9A enquiry has been opened into that year and has not been concluded see paras 21(1), (3) & (4).

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By ireallyshouldknowthisbut
11th Jun 2019 11:29

I would supply "the lot" on the missing overseas income.

On the rental, I would speak to the inspector. They often just bang out standard requests for info. I would offer probably just your summary working papers initially and if pushed ask them to "pick one property".

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Replying to ireallyshouldknowthisbut:
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By Vaughan Blake1
11th Jun 2019 11:50

Don't forget that from the HMRC side of the fence they only see the actual figures that appear on the return. Presumably there is no problem in sending HMRC the 'schedules of data' that your software produces as a first port of call. The Inspector can then ask for extra info if he sees fit.

It is also worth ringing the Inspector for a chat to test the water and see what info he actually wants.

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