How do you get a decision in principle from HMRC?

Doubtful allowable tax deduction?!?

Didn't find your answer?

I hope you have all had a great Christmas and the New Year brings a better time?  If anyone is working I wonder if you could help me with a question? 

I have a client who is a professional offering services, he used to work for an employer but they parted ways last year.  They have now set up for themselves and brought legal action against their prior employer for the caseload of clients that they previously had while in past employers employment.  They are trying to claim the legal fees for said legal action in their current self employment trade.  The trade is the same for which they were employed but its different in the fact that they were then employed but are now self employed.  In my head the legal fees relate to their employed period rather than self employed?  Anyway the problem is they are now wanting to reclaim these sizable legal fees against current self employed income. 

Would i be right in saying there is a way you can get a 'decision in principle' from HMRC in relation to such matters?  I honestly dont think it would be an allowable expense and am hesitant to put it through but client is adamant so i was hoping to apply to HMRC and let them decide?  I though there was a process for decisions in principle but cant find it?

Replies (17)

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By SteveHa
27th Dec 2020 18:48

HMRC will not provide a "decision in principle", and even if they offer an opinion, other than for legislatively recognised clearance, will not be bound by it.

But, in any event, your client fails the W&E test with regards to this particular expense, and so even if HMRC were to offer an opinion, it would be "not allowable".

Thanks (2)
Replying to SteveHa:
By tracyannw
27th Dec 2020 19:07

Thanks Steve that is more or less what I was thinking but cant seem to convince the client. I was hoping a decision coming from HMRC would convince them. I think I am just going to have to stand strong on this one. I am not willing to compromise on what I believe is correct.

Thanks again

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Replying to tracyannw:
By SteveHa
27th Dec 2020 19:09

You could always give them the HMRC (un)help line number and let them get it from the horses mouth.

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Replying to SteveHa:
By tracyannw
27th Dec 2020 19:52

I really like that idea - give them a taste of dealing with HMRC direct :) Thanks

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Replying to tracyannw:
By Paul D Utherone
28th Dec 2020 13:35

tracyannw wrote:

I really like that idea - give them a taste of dealing with HMRC direct :) Thanks


Though of course you can bet your bottom dollar that the Helpline will get half the information and give an answer off the cuff that will be contrary to what you have said, and the likely outcome on review by a technical officer with full facts. So you'll then be in a position where the client says "...but HMRC say it's allowable"
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Psycho
By Wilson Philips
27th Dec 2020 20:30

It doesn’t sound like there’s any legislative ambiguity or uncertainty to resolve so a non-statutory clearance is probably out of the window. That’s the easy part - explaining to your client why there’s no point in contacting HMRC.

You don’t offer enough information about the nature of the claim so I’m not going to comment on its deductibility. Your job is to form a view on that and advise your client accordingly. Depending on the level of doubt, you might think about claiming a deduction with appropriate disclosure.

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Replying to Wilson Philips:
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By Tax Dragon
27th Dec 2020 22:56

Wilson Philips wrote:

You don’t offer enough information about the nature of the claim so I’m not going to comment on its deductibility.

+1

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Replying to Tax Dragon:
By tracyannw
01st Jan 2021 14:46

Wilson many thanks the point of the question was more is there a helpline to which i can point the client for them to hear it direct from the horses mouth. I am confident that the deduction is not allowable (which is why i have not given extensive details) I gave brief details as a background to my question.

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By unearned luck
28th Dec 2020 16:57

Try putting this argument to your client: You expect to win the action and be awarded your costs by the court, therefore you will not ultimately bare any cost.

If you think that the client's claim is untenable but the client still insists on claiming relief then you need to consider the PCRT.

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Replying to unearned luck:
Psycho
By Wilson Philips
28th Dec 2020 17:24

Deductibility of costs does not depend on success or otherwise of the action. What is more relevant is the nature of the claim.

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By carnmores
28th Dec 2020 19:03

note to AWEB its taking too long for many posters to know their question has been posted hence multiple similar questions , surely this is fixable

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Replying to carnmores:
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By Paul Crowley
01st Jan 2021 14:30

Concur
I really now try to be patient

For openers not difficult surely to restrict Questions to no more than one an hour
And newbies
No more than one a day

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By Homeworker
31st Dec 2020 10:29

Being ex-Revenue (though from a long time ago), I agree that you will not be able to get a decision in principle as the whole point of Self Assessment is that you have to make a decision first and HMRC can then challenge it.
I don't think we have quite enough information to decide whether this expense is allowable or not but this is from BIM35545:
"A payment that secures an enduring benefit to the business in terms of a change in organisation or structure is likely to be capital."
If they are fighting to take on or keep a bunch of clients then surely this is a long-term benefit that will affect the size of the business?

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By dmmarler
31st Dec 2020 14:50

From what you have, said I doubt any claim against a previous employer would be successful. A usual contract of employment would specify that any client obtained during the course of the employment was that of the employer, and there would be clauses specifically preventing poaching should an employee set up for themselves. The clause could be in supplementary documents, not in the main contract. I would politely suggest money spent on lawyers could be wasted.

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Ray McCann
By Ray McCann
31st Dec 2020 18:07

This is a difficult position to be in. I don’t see that HMRC would give your client any comfort, as the legal costs involved are almost certainly not an allowable deduction (but more complete facts might have a bearing on that).

You could suggest a second opinion, the cost of that would be around the same as a request to HMRC most likely. In the end there is guidance in PCRT.

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By whitevanman
31st Dec 2020 22:29

With one notable exception, all responders appear to have addressed the question of whether the amount is (likely to be) allowable for tax purposes and that was not the question raised.
As Wilson Phillip's commented, a non-statutory clearance is unlikely to be given for this matter but perhaps you did not see the significance of that comment in relation to the question actually raised (forgive me if you did, it appears some did not).
There is a process called the Non-statutory Business Clearance procedure that allows one to obtain an opinion from HMRC. Again however, as WP explains, there must be some uncertainty not dealt with in guidance etc. I note you have been unable to trace "the process" which is quite surprising because there is an HMRC manual albeit confusingly entitled "Other Non-statutory clearance guidance" that deals with it.
Like WP, I doubt your case would come within the process, not least because you would need to set out all the facts and your analysis based on legislation and case law, identifying the alternative answers and why you considered there to be uncertainty in the legislation and its application to your case ( not just your own or your clients uncertainty). If you actually got that far, I suspect you would be clear in your own mind so the process would not apply and that is the response you would likely get back. A lot of cost to the client for no real purpose (IMHO).

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Replying to whitevanman:
By tracyannw
01st Jan 2021 14:19

Many thanks whitevanman you are correct in that the original question was not asking for advice on whether or not the legal fees were an allowable deduction which is why i had given little information on the deduction. I am happy that it is not an allowable deduction but was really struggling getting the client to accept this which is why i thought i could point them to an HMRC 'decision in principle' type of service whereby they would be informed direct from the horses mouth (in a manner of speaking) . We have been discussing this at great lengths over the past week and I have managed to get the client to agree to exclude these costs so no longer need the service. However I am thankful for all of the replies i have received on this. As ever there is a great team on these forums that are very friendly and helpful. HAPPY NEW YEAR ALL!

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