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S9A enquiry - request for earlier papers

HMRC asking for papers going back 15 years in order to establish 'behaviour'. Can they do this?

2015/16 S9A enquiry.

Turns out the client has had overseas rental income for the past 15 years which hasn't been declared. 'Behaviour' has not been established yet, and so whether this was a careless or a deliberate ommission is currently unknown.

HMRC have requested records going back the entire 15 years. Are they entitled to do this at this stage i.e. before 'deliberate behaviour' has been established? Their justification is that they need the records in order to establish behaviour, but my argument is that the mere provision of records would not in itself enable them to do this, and so am resisting supplying the records unless and until 'deliberate behaviour' has been established by other means.

What are readers opinions/experiences on these 'previous years' requests, please? Are HMRC justified in requesting prior years' records at this stage, before behaviour has been established?

Thanks.

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06th Apr 2018 09:54

What records are they asking for ????

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to bernard michael
06th Apr 2018 15:30

"Details of rental income received for each year, with supporting documentary evidence. Expenses schedule for each year, with supporting documentary evidence. How the property purchase was financed. Full bank accounts for all overseas bank accounts."

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06th Apr 2018 10:25

What reason has the client given for not telling you previously, and how did this come to light?

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to Paul D Utherone
06th Apr 2018 15:34

The client has told me (and I have no reason not to believe him, so have to take it at face value) that as he is resident in the UK, and the rental income arose from a property abroad, and at no time has any of the rental income been brought back to the UK, he assumed it did not need to be declared. I have since told him that this is not the case.

It came to light when HMRC asked, in their opening letter, for details of income in the UK and abroad. That's when he told me about the overseas rental income.

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06th Apr 2018 11:45

Have you asked them under what legislation they feel they are justified?

EDIT: To expand on this, if they were working under COP8 then maybe, but not S9A.

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to SteLacca
06th Apr 2018 15:36

No, it's early days in the enquiry and so we haven't got into much communication about it so far. It is S9A, not COP8.

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06th Apr 2018 21:06

That sounds like establishing the taxable income to me. Why wouldn't they want to start at the beginning?
My first questions would be about domicile/residency. If came to UK as change of residence not bringing funds into UK could make a difference. As could the location of the overseas property and any fiscal restrictions over the 15 years.
Surely you need to establish the liability as a first step , so even if you don't want to give records yet you can supply the figures.

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to Marion Hayes
07th Apr 2018 11:43

Thanks for your reply.

Yes, establishing liability for all those back years would be required IF it can be proven that there has been deliberate action by my client, but the point is that we haven't got to that stage yet (not to mention whether or not those records/figures would still be available anyway). The question is do HMRC have the authority to ask for the records before establishing deliberate action. My feeling is currently that there has been 'careless' behaviour which limits the years back to which HMRC can assess.

The client is UK resident and domicile, so there is no question of a non-domicile/non-residence 'get out'.

Thanks.

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to mail.taxperfect.co.uk
09th Apr 2018 12:03

I think you are wrong.
Your client presumably didn't just miss out one property but the whole source. Failure to notify has obviously occurred and therefore it is not relevant whether the action was deliberate. In addition, his comment about not bringing money into UK shows he considered declaring the income and was negligent in his conclusion so the full 20 years would apply, not just 2008/09 onwards.

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By Matrix
06th Apr 2018 22:47

Was tax paid on the rental profits overseas? Do you think there is much tax lost to HMRC?

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to Matrix
07th Apr 2018 11:46

I don't know (but I don't think so). The figures are only small, so maybe not too much tax lost, but the point is do they have authority at the present time to ask for records going back 15 years BEFORE establishing 'deliberate behaviour'? Thanks.

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By Matrix
to mail.taxperfect.co.uk
07th Apr 2018 11:54

Sorry I don't know the answer to your question but I think you need to find out whether overseas tax was due and whether it was paid since this will help you determine your approach. In which country is the property?

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By raycad
to mail.taxperfect.co.uk
09th Apr 2018 12:29

In a case of not taking reasonable care HMRC can go back 6 closed tax years. As the year 2017/18 has just ended that means they can currently legitimately go back to the tax year 2012/13 in terms on insisting on the production of records etc. In terms of seeking paperwork and other relevant information this is the limit of their Statutory powers, should they feel compelled to enforce the production of same.

Consequently, my advice would be to provide whatever you are able to produce for the 6 years stated and politely explain that this is the extent to which one can reasonably be expected to go at this juncture in terms of record provision. There is also certainly no harm in putting forward your client's explanations for not declaring the Overseas income and expressing the view that, prima facie, the client's incorrect view constitutes a lack of reasonable care (only).

As you have more or less implied, in order to go back beyond 6 years (with a maximum of 20), HMRC must, at the very least, put forward a compelling argument that the behaviour was deliberate. Even then, they do not necessarily have the power to demand the production of records for the "ancient" years; and certainly not when the said records are no longer available because they have been disposed of and/or erased from an electronic system.

Even where HMRC do believe they have established deliberate evasion, the normal course of events would be to quantify the profits etc for the past six years and then extrapolate the results into the ancient years under the "presumption of continuity" principles.

I would agree that this is a classic case of putting the cart before the horse and typifies the current HMRC stance in relation to any Overseas omissions, i.e shoot first and ask questions later. To be fair, they've always had an inclination to do this with offshore income but now of course the penalties for any form of offshore omissions have been doubled. Go figure!!

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07th Apr 2018 19:08

HMRC recently opened an enquiry into one of my clients and then tried to ask for information from the two years prior. We told them to get lost and they did. Having said that, I did not believe that anything was amiss in either the year which was being enquired into or the earlier years and have no idea why they opened the enquiry. I think some bright spark in the tax office was trying to earn brownie points with his bosses by trying to be very clever and create an imaginary tax charge (based on one of the questions asked).

If you know there is unpaid tax from earlier years though, you are heading for discovery and it may just be best to sort it now rather than be difficult with HMRC to keep penalties down.

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By birdman
09th Apr 2018 12:23

Isn't the killer question "how was the purchase financed"?

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24th Apr 2018 09:19

Thanks for the replies, everyone. Lots of ideas and comments to work with.

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