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Premature EIS Income Tax Relief "Claim"?

EIS Income Tax Relief - Client Dispute with HMRC - Has She Claimed it or Not?

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New client dealing with own personal tax has gotten involved with a wearisome argument with HMRC regarding EIS income tax relief.

To cut an epic story short I will use an illustration.

Client completes and submits on time 2016/17 paper tax return and on Page Ai 2 box 2 entered £200,000 for EIS share subscription. But on Page Ai 4 box 21 she merely mentioned that because forms EIS3 are not yet available they cannot be submitted to HMRC. The box also mentioned an intention to carry back some of the EIS subscription to 2015/16. It was also impossible to mention any specifics about the investments because no details about the companies were known at that time, only the amount invested. (The £200,000 investment was dealt with by a financial adviser).

HMRC processed the 2016/17 tax return and gave 2016/17 relief on £200,000 at 30%. HMRC subsequently opened an enquiry and found out that by the time the 2016/17 tax return was submitted, no EIS3 forms were held by the taxpayer. They were sent to her much later.

HMRC allege that client made a mistake on the tax return by claiming income tax relief prematurely. Client is arguing she did no such thing, and that no valid EIS claim was made by her on the tax return.

Having spent days pouring over all the correspondence, I am inclined to believe that HMRC are correct. Client may have made an incorrect claim for income tax relief on £200,000 because Box 21 on Page Ai 4 appears not to have been completed correctly, and forms EIS3 had not yet been issued.  But HMRC initially allowed the claim without question.

Before I recommend to client that she yield to HMRC, is there any mileage at all in client's contention that she did not make a valid income tax claim on the tax return. (She did subsequently make "further" claims by staggered submission of duly completed EIS3 forms after the tax return was filed).

To me it seems like an open and shut case in favour of HMRC, but the amount of time and effort invested by client and HMRC in their arguments is phenomenal.

Client is threatening taking HMRC to the Adjudicator or Tribunal. She is unwilling to yield.

Do not think that much tax is at stake because HMRC prepared to allow the EIS3 form claims. But it seems to be a matter of principle for client.
 

 

 

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16th Mar 2019 06:04

I would tend to think that the claim was submitted by virtue of the entry in box 2 Ai 2.
I don't think the entry in box 21 Ai 4 negates that claim.
Personally I wouldn't put any further effort into this, sounds like a Pyrrhic victory is being pursued by the client.

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16th Mar 2019 10:01

Has your client nothing better to do ?

It's not worth pursuing, is it ?

Don't damage your reputation by taking on a no-hope case. I've never lost a case before the Commissioners/Tribunals. One of the reasons, aside from my brilliant advocacy of course, is that I'm very selective about what I take on.

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to lionofludesch
18th Mar 2019 12:53

In answer to the previous comment about having nothing better to do, I think the short answer is "probably not".

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16th Mar 2019 10:05

A QC once told me that when a client mentions "a point of principal" he starts booking a cruise because he knows he will make a fat fee
come what may
I agree with the others if there's nothing to gain why fight

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16th Mar 2019 14:10

I agree with all of the above.

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16th Mar 2019 16:12

I suspect I would agree too, if only I could understand. I've read

penelope pitstop wrote:

HMRC allege that client made a mistake on the tax return by claiming income tax relief prematurely. Client is arguing she did no such thing, and that no valid EIS claim was made by her on the tax return.

several times and I still don't get the client's argument. "I didn't exclude an invalid claim from my tax return but that doesn't make it incorrect." I'm lost in the negatives.

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to Tax Dragon
16th Mar 2019 17:32

Having read all of the HMRC/client correspondence on and off for around a week or so I began to feel a combination of brain fatigue, sea sickness and vertigo all at the same time!

It was far too much for my tiny brain to cope with.

I think client is trying, admirably, to tie HMRC in knots. But it does not seem to be working!

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to penelope pitstop
17th Mar 2019 08:22

What's the tax advantage of "no valid" claim over an "incorrect" one?

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to Tax Dragon
17th Mar 2019 11:06

Tax Dragon wrote:

What's the tax advantage of "no valid" claim over an "incorrect" one?

It proves the client was right all along.

In the client's mind.

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to lionofludesch
17th Mar 2019 15:49

Isn't that a non-tax non-advantage? And a non-tax non-advantage isn't a tax advantage, is it?

The negatives in this thread continue to bemuse me. [I won't be hornswoggled if none of it don't fail to make no sense.... or will I?]

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to Tax Dragon
18th Mar 2019 02:45

HMRC allege there were inaccuracies in client's tax return due to client claiming EIS relief in error because EIS3 forms were not held by client when tax return submitted.

Client had entered the £200,000 EIS figure on her 2016/17 tax return because £200,000 had left her bank account during the 2016/17 tax year and invested in EIS schemes, exact details of which she was unaware.

Client responded that she had not claimed the EIS tax relief on the tax return because a valid tax relief claim had not been submitted. To support her argument she relied on the 2016/17 Additional information notes which state:

"You can claim tax relief if you received:
Form EIS3, ‘Enterprise Investment Scheme Certificate and claim to relief’ from the company you invested in

Put the amount on which relief is being claimed, up to £1 million, in box 2. You must also give us details about each investment in box 21 on page Ai 4."

She is relying on box 21 page Ai 4 merely saying "Forms EIS3 to follow" to suggest that a valid claim had not and could not have been made at the point of submission.

The problem is that HMRC allowed the £200,000 at 30% almost immediately.

Client has a history of successful disputes against HMRC. But I think she may be on a loser with this one.

What does she gain if successful: another feather in her cap. That's all!

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18th Mar 2019 06:48

I saw your update last night before Aweb pulled it.

If your client wants to pursue an argument from a time before you were acting, that's up to her. (Btw, I admire your take on process as you say this isn't the first time she's been subject to enquiry - I don't think ours would uncover that, for an unrepresented taxpayer.)

I still don't get why your client is carrying this on. With respect to you, I'm not sure you do either. Sounds like she's asked you to deal with it (else, why are you?) and thrown some paperwork at you, which you have dutifully read. Your next step is surely to invite her in to talk with her and discuss the plan.

Agenda point 1 is to find out why she cares so much. Get the real why, I don't believe the feather-in-cap line. And, despite your OP referring to tax being at stake, you haven't identified any. Does your client agree?

If the meeting carries on long enough, you'll need to address the arguments. As you have understood and summarised hers in this thread, you know already that it doesn't withstand much scrutiny. There are behavioural weaknesses: presumably she didn't self assess, but even so when she got the HMRC calculation showing EIS relief which, in her mind (so she says), she hadn't claimed, why didn't she contact HMRC to rectify "their" mistake? £60,000 is enough to notice.

Once she's answered that, point her to the extract you have quoted (and on which you say she is relying):

penelope pitstop wrote:

Put the amount on which relief is being claimed, up to £1 million, in box 2.

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18th Mar 2019 11:46

I am absolutely baffled by this. Your client didn't intend to make a claim but for some reason they added the £200,000 figure on the tax return, if there wasn't an intention to claim why bother adding the figures? Also, if they didn't know the dates of the EIS investments how could they tell HMRC they want to carry back some of the claim to 15/16?

Ridiculous.

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to Paul Hawes
18th Mar 2019 12:02

The only thing I can think is that the client believes that, if she can show her Tax Return wasn’t incorrect, then HMRC has to cough up for the £60,000, on the (ridiculous - right word) basis that this relief was given without having been claimed.

I’m looking forward to reading the Tribunal’s decision.

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to Tax Dragon
18th Mar 2019 12:42

Thanks for all of the above comments which confirm my thoughts.

I can only guess the reason is hubris combined with an absolute dread of HMRC getting one over on client for the first time.

As far as tax being at stake I still need to get to the bottom of this. There is one aspect I have not mentioned yet, but I can only assume that tax at stake is minimal.

Taking the sum total of client's missives to HMRC, her argument would appear to be that the original £200,000 entry was merely only a "memorandum" on her tax return. Client could have assumed that human inspection would have picked this up. But she overlooked the fact that tax returns are processed by HMRC without much thought.

Or maybe she had become accustomed to having EIS relief allowed year after year and thought that 2016/17 would pass through on the nod.

The fact is that tax relief is due anyway, so no tax has been lost to HMRC.

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19th Mar 2019 07:13

This whole thread still troubles me.

The client is presumably not arguing that HMRC was wrong to determine that the £200,000 should not have been included in box 2. So what is she arguing? (Am I right in thinking she thinks she should get the £60,000 twice?)

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to Tax Dragon
19th Mar 2019 09:18

I've given up.

I've better things to do.

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to lionofludesch
19th Mar 2019 09:25

You've (finally) made me realise the attraction of Aweb. Other people's clients are like other people's children: you can hand them back.

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to Tax Dragon
19th Mar 2019 09:35

I have a low stupidity tolerance threshold.

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to Tax Dragon
19th Mar 2019 11:57

She is not dishonest so does not want the £60,000 twice.

She is unaccustomed to being told she is wrong. But I will nicely tell her she is. (She will take it from me).

Despite her idiosyncrasies, this is the sort of client you do not want to get rid of.

Client's with very deep pockets can afford their eccentricities! After all, time is money and it takes fathoms of time to deal with circular arguments like these!

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