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HMRC error - enquiry letter

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Good morning all,

So.... I have been back and forth with HMRC regarding a 2016-17 self-assessment tax return enquiry over the past year.

I'm glad to say that HMRC have yielded on the important parts of the enquiry (PPR claim etc.) but we have agreed that a 'low interest loan' was missed off of our client's 2016-17 return (no P11d was issued). Whilst this gives rise to a further £3k tax liability, compared to the other tax at stake, it is a win for the client.

We have received a letter from HMRC today saying 'here is my recalculation including the BIK and now you owe £3k'. It also goes on to ask our client 'why he missed this off his return' etc. so that HMRC can determine the level of penalty that should be charged. The problem is that the letter refers to the 2015-16 tax year and the recalculation has also been done to the 2015-16 tax year rather than the enquiry year, being 2016-17.

This inspector has been quite reasonable and goodwill has been built up over this time so I don't want to be to push my luck, but does anyone feel that this is not really acceptable from HMRC? I mean, our client is going to have to justify why he left this item off his return (careless etc.), whilst at the same time HMRC are issuing enquiry letters and recalculating his tax liability in the wrong tax year.

I'm interested to hear how you would play this out (I have the inspectors email details so could easily contact him in this regard).

Any thoughts or comments would be welcome.

Replies (8)

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By Paul D Utherone
29th Mar 2019 11:57

Depending on the reasons for no P11d being issued and connection between employer & employee should you not be going for reasonable care having been taken - entries were made based on information provided by the employer - and no penalty being due?

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Replying to Paul D Utherone:
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By We're_all_mad_here
29th Mar 2019 12:13

Yes this is going to be my approach.

It was more a question of how should I approach the HMRC error. I obviously need to make HMRC aware that their letter & calculation are incorrect and I wondered if anyone had any thoughts on whether I should use this point to argue against penalties. Perhaps I should inform them of the error and argue on the basis as you noted (leaving the error as a stick to hit them with if needed).

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Replying to Paul D Utherone:
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By Mr_awol
29th Mar 2019 16:00

Would that not be something of a risk?

If, as stated in the OP, and element of goodwill has been built up, then I'd be fairly confident of avoiding a penalty on SA - either nil penalty or perhaps negotiating a suspended penalty even if they went in at 15%.

On the other hand, I'd be on a somewhat looser footing in respect of a flat rate penalty for non submission of a P11D (albeit capped at c£400 being the approximate C1A liability)

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By ireallyshouldknowthisbut
29th Mar 2019 12:10

I would agree with Paul.

if nothing has been issued, then its not the employees fault, even if they are the director and 100% shareholder of the company.

They would need to investigate the company.

Of course you can certainly have some fun with this if they do the normal line in "no errors are innocent" and its all careless.

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Replying to ireallyshouldknowthisbut:
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By We're_all_mad_here
29th Mar 2019 12:19

Yes I agree.

It was this point exactly. I don't want to over do the 'as I am sure you can appreciate mistakes happen' lines as I don't want to antagonize the inspector.

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By Wanderer
29th Mar 2019 12:22

I wouldn't make a big issue of it.
Ring up the Inspector and let them know about their careless error in their letter and give them a chance to correct it.
Whilst you are at it agree (jokingly referring to the above) your client hasn't been careless (as no P11D issued) or if careless minimum penalty calculation and full suspension.
Make your formal response suggesting what's already been informally agreed.
Inspector formally agrees and both sides get a result.

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By leeanthonyblackshaw
29th Mar 2019 12:28

A couple of times I've responded to HMRC politely, along the lines of:

"it is, of course, difficult to explain to my client that their mistake potentially causes financial penalty when your letter itself contains a careless mistake"

and in both cases HMRC cancelled the penalty.

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By SXGuy
29th Mar 2019 13:10

Cant really add to what others have already said, but with regards to mistakes this happens a lot.

Client last year had an enquiry into their SA, for some reason he neglected to tell me about any private pensions. HMRC stated the pensions and tax stopped that should have been included in the return. All there was correct except their tax calculation of the total liability was way off.
What they had stated in their letter didn't even match the details on their tax calculation.

It winds me up that we are forced to explain mistakes but they can make them whenever they feel like it with no come back. Had the client not had an agent, he probably would have paid the overstated tax.

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