Share this content

HMRC enquiry and use of best judgement

HMRC have used 6 days of turnover data to assess 3 yrs underdeclared income

Didn't find your answer?

A convenience store has been the subject of HMRC enquiry. HMRC took data from tills for 6 days. They have used this to calculate under declared income for three years and are proposing to raise IT/Class4/VAT assessments.

What are your views on this being best judgement by HMRC? Can we put forward some other basis?

Replies (9)

Please login or register to join the discussion.

By SteLacca
08th Jun 2018 13:08

If you have information to suggest that HMRC's method will be excessive, and an alternative method may produce a more realistic result, then off course you are free to propose the alternative method.

Bear in mind that, to an extent, enquiries are a negotiation.

Equally, HMRC are free to reject your proposal.

Thanks (1)
By ireallyshouldknowthisbut
08th Jun 2018 13:19

Provide evidence


Thanks (1)
By Tim Vane
08th Jun 2018 13:26

Was there something special about those 6 days or was it a typical trading period? Presumably HMRC opened the enquiry because of a benchmarking anomaly? If the previously declared receipts were significantly different to the benchmark and the 6 days trading were close to the benchmark figures then you are going to find it very hard to argue your case, although HMRC will probably not tell you what their benchmark was. Having said that, make a reasoned offer and see if HMRC will take it to close the enquiry.

Thanks (1)
By Tornado
08th Jun 2018 13:36

Best judgement is not what you and I would expect it to be.

It is best judgement based on the 'fuzzy law' that HMRC use in their Enquiries and the main reason why HMRC rarely prosecute as prosecution requires hard evidence whereas Enquiries and the calculation of additional assessments do not.

They can, for example, take the ratio between cash and card takings on a single day as representative of three years takings if they wish.

HMRC are experts at Enquiries, and are backed up with almost unlimited resources They are also not in any particular hurry and can string such enquires out over a number of years.

The best approach is to pragmatically assess the situation and decide if they have a point and then perhaps negotiate with them., otherwise specialist help may be required and a deep pocket for the significant costs involved to appeal.

Thanks (1)
Replying to Tornado:
David Winch
By David Winch
08th Jun 2018 14:19

Prosecution is also very much more expensive / time consuming for HMRC & the burden of proving the criminal offence (of which dishonesty is usually a necessary element) is on the prosecution.

Thanks (1)
Replying to davidwinch:
By Tornado
08th Jun 2018 15:46

Yes indeed.

HMRC also have the added ability to publish details of people who are 'deliberate tax defaulters' which might cause a problem for some people.

Thanks (0)
By bernard michael
08th Jun 2018 14:45

I had a similar but worse one. VAT sleuths sat outside my client's takeaway (not VAT registered) for 4 hours one evening counted the customers and the number of bags they were carrying. They then entered the shop and inspected the till roll. From this the estimated he should have been VAT registered and raised assessments going back 5 years amounting to £90000.
They settled for £8000 when I threatened that the client would go bankrupt

Thanks (1)
By lionofludesch
08th Jun 2018 16:32

The pea-counting one was dismissed out of hand at Tribunal. That must be 20 years ago now......

Thanks (0)
Hallerud at Easter
09th Jun 2018 00:44

Does a longer period/periods analysis of sales records arrive at a lower average?

I presume your client does not have till z totals for the whole period, otherwise his/her accounts would have used same, but are there longer periods of till records that you could use rather than the six days which I presume are consecutive from one month?

Other than this, are there any changes in operations within the overall period , have you discussed with client? e.g. number of days operation/opening hours operated etc has changed, the business has a seasonal variation in activity and the six days are from the busy period etc.

The catch with these exercises is they do tend to involve a lot of professional hours, I once prepared a vast exercise re mark up/ GP% for a fish and chip shop with significant seasonal variation in the cost of potatoes (HMRC of course chose the purchase invoices with the lowest cost in the year), here it appears simpler though if no good sales records you may be forced to consider a very time consuming mark up exercise to prove your client's sales.

At the end of the day the best evidence ought to win (coupled with credibility of client as a witness your skills), can you uncover better evidence to support your client's declared sales?

Thanks (0)
Share this content