HMRC Enquiry

HMRC Enquiry

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A client is under investigation. They pay an office cleaner £25 a week cash. The cleaner has issued them an annual invoice for £1200 being 48 weeks at £25. The invoice does not have a business address or contact number. The inspector has stated that "I need to satisfy myself that the the payment is an allowable business expense for tax purposes and that the payments have actually been made to a third party. There does not appear to be any audit trail. All the records show is that the director made cash payments. The invoices sent to me could have been produced by anyone. They do not show any information about the business. I do not believe this is normal practice and I am surprised that you expect me to accept this."

He goes on to say that unless we provide the full name of the proprietor of the business together with the business address and contact number, he will issue a closure notice and disallow this expenditure and "you can then appeal and present your case to the commissioners".

Our client no longer engages the services of this cleaner and does not have this information.

Any advice would be greatly appreciated.

Amanda S

Replies (10)

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By Colin23
11th Nov 2008 01:59

Closing down unreasonable enquiry
You can apply yourself to close the enquiry. Set out the reasons clearly to the Clerk to the General Commissioners or the Special Commissioners. If the latter are selected the Revenue will have to think very carefully about being heavy handed. You can copy your application to HMRC if you wish but you are not obliged to do so.

The application is made under TMA 70/S28A(6);TMA 70/S28B(6);FA 98/SCH 18/PARA 33(3); TMA 70/SCH 1A/PARA 7(6) depending on the type of business represented.

The Commissioners cannot at this stage determine whether the officer is correct but can order the closure of the enquiry and therefore the stop the Revenue's opportunity to keep raising questions.

Expect the officer to wield the blunt instrument of amending the self assessment. Expect him also to start formal penalty proceedings based on his views.You then amend the figures to your version. His only avenue is then to list the case for hearing again.

The onus of proof is that of the appelant, this is you.Does your invoice stack up ? Why does the client not remember the contractor's contact details? How will they stand up if called before the Commissioners?
Were they listed in any commercial directories? How did they approach your client for the work? Can you answer all these points so that the balance of evidence points to the money having been paid to the cleaning firm? If not back off now and accept the adjustment.

If you don't want to go down this route at this stage ask the Revenue to conduct a peer review of the case by an independent HMRC inspector and tell them you think the present enquiry officer is being unreasonable.

How long has the enquiry been running? If it is more than eighteen months the pressure is on HMRC to produce results or close the enquiry and go away.

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By User deleted
10th Nov 2008 12:34

Cleaners - receipts

- receipts.......

I presume this is still current - but I remember when I started out 20+ years ago, we would tell clients

If you can't get a receipt for a cash payment - write all the details (as much detail you can) on a piece of paper - as as long as you could confirm it was "self-billing" - i.e. you are declaring you paid the cash to named person on a specific day it was acceptable. Amounts involved should be kept a low as possible and only do this as a last resort.

There was a High Court case, where a Tax Inspector was asked by the Judge if he paid his Window Cleaning in Cash and the Inspector confirmed he did. The Judge then asked the Inspector - does your Window Cleaning provide receipts. The Inspector confirmed he did not.

I have a client who pays his cleaner in Cash, which he leaves out for her. (He had a cleaner at home - which the HMRC accepted the need). But she only gives him receipts when he actually sees her to ask for it. This also was queried a couple of years ago when the client was under enquiry. I explained this, and that my client was normally asleep when she came so had difficulties asking for the receipt - and it was agreed it was would be unreasonable for him go without sleep just to obtain this receipt.

But having now explained all this - I would expect a client to have and supply the Business contact details. These details needs to be the details which a client had when they made the payments. Your client really should be able to come with this - even if they are now out of date.

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By markfd
07th Nov 2008 10:43

Cleaned Daily?
Was the office cleaned daily? If so the cost of £5 per clean falls below the threshold required for vouchers.

Get the Director to provide a short letter confirming the payment was made to a third party, what the name of the person actually doing the cleaning was or some description (e.g. a polish girl in her 20's whose name I was never given), what he/she did, when he/she did it, and sign it. That is then your evidence of genuine third party payment and if the Inspector wants to call your client a liar that's a tougher call than the current position.

If the client won't provide such a letter, he probably is lying!

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By User deleted
06th Nov 2008 17:37

So who does clean the office?
The client has spent apparently a reasonable sum of money to have his/her offices cleaned. Does HMIT think they clean themselves?

Call his bluff, and ask him how much he thinks it costs to have x sq ft of offices cleaned weekly?.

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By AnonymousUser
06th Nov 2008 17:16

Thank you
Again, thanks to everyone who has replied. We had the invoice 2 years before the investigation. The client has always been honest and up front with us. The invoice was produced at the beginning of a years contract. The client paid weekly for obvious reasons.

I appreciate all the comments made but rather than debating the integrity of the client can anyone help with any argument we can put forward to HMRC. I know expenditure has been allowed by HMRC in the past without any invoices being produced.

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By neileg
06th Nov 2008 15:36

Not illegal
There's nothing illegal about paying cash. However the arrangement is certainly unusual. If there was an invoice for each week or the annual invoice was paid as a lump sum, that would be straightforward. I too think it is odd that your client doesn't know who was providing his cleaning services.

I, reluctantly, have to side with the inspector on this one.

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By AnonymousUser
06th Nov 2008 14:18

Thanks for the replies. The business name is stated on the invoice supplied by the cleaner - Polish Contract Cleaners. It is the proprietor of the business which we do not have details for.

My client has contracted the services of this business- they have fulfilled their duty by cleaning the offices and issued an invoice which my client has paid.

It appears it is the cash element that the Revenue has taken exception to. I didn't realise paying in cash was illegal.

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By User deleted
06th Nov 2008 13:24

Call his bluff?
I agree with the respondents below - I don't think the Inspector is acting unreasonably. Having said that -

What kind/size of office are we talking about? Would it be reasonable to expect a 3rd party cleaner to be engaged regularly or are they type of premises that could reasonably be expected to be cleaned only every now and again by the business owner?

I do agree that the client should certainly know the cleaner's full name.

The question then is how many years are subject to potential adjustment and are any other adjustments proposed? 6 years at £1,200 (ignoring RPI adjustments) at 40% would give a tax charge of under £3k. I would be very surprised if the Inspector were allowed to take a case to the Commissioners for that amount. Bearing in mind that the standard of proof in such cases is reasonable probability I think the Commissioners may well agree that £25 per week for cleaning costs is perfectly reasonable, regardless of the quality of the supporting documentation. I'd be inclined to let the Inspector close the case and appeal.

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By User deleted
06th Nov 2008 12:44

Me too
I too can see the Inspectors point of view - isnt their some way your client could provide further details of the cleaner used? How did he hear of him/her, where were they based, did any other local businesses use them who may have details?

Are you really sure this cleaner exists and the invoice hasnt been hastily written by your client?

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By sally1964
06th Nov 2008 12:36

cleaner
In this case I would have to agree with HMRC. Whose to say that he really did have a cleaner.

Surely he knows their name and address. I would not let a complete stranger into my house or office without knowing who they were.

Presumably this cleaner was doing it cash in hand and not declaring the earned income.

Your client either needs to provide detials or it will be disallowed. Also PAYE compliance are liekly to look at him again in the near future if he is employing casual employees.

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