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.