Client has had a tax investigation - their own fault really for making obvious errors on property pages of tax return (by a well know franchise).
I have now taken this over from previous advisers and we have agreed with the inspector all bar one point.
The client was in employed two years back and whilst in employment claimed around 2k in travel and subsistence. The details of which was given to the employer within the expense claims. All perfectly legitimate. Employer since gone bust and records are not obtainable.
Inspector quoting S336/ /7 ITEPA but for compromise will go 50/50. Client not having any of it as he has given ground on other points but these were legitimate business expenses that he incurred, records of which were kept and passed to his employer.
Any thoughts on best way to resolve this stalemate?
Thank you.
Stan
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Replies (2)
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better still
why not ask the inspector to have someone look at it from an informal viewpoint
Possible answer
I assume that, having made his claim and submitted the expense invoices to his employer, the employer then reimbursed the expenses. I'm also assuming that the Inspector is now seeking to tax the reimbursed expenses (and I'd guess that he's picked these up from seeing the credits in your client's bank account).
Assuming that the above is correct, then the very fact that the employer reimbursed the expenses should be sufficient evidence that the employer considered that the expenses were (a) incurred and paid by your client, his employee and (b) necessarily incurred in the performance of the duties (or travelling in the performance of the duties) of the employment, i.e. satisfying the criteria of Sections 336 and 337 ITEPA 2003. If the Inspector has an argument, it should be with the employer (for example, by seeking to tax some element through the PAYE Settlement Agreement). I note your point that the employer has gone bust but that does not allow the Inspector to switch the onus from the employer to the employee.
You simply need to stand your grounds. He is wrong. If he won't change his mind, you could ask him to issue a closure notice and a Revenue amendment. You can then appeal against the amendment. Since 1/4/09 this will then entitle your client to an independent internal review. One would hope that such a review will be undertaken by an HMRC officer with a better understanding of the legislation. The statistics published by HMRC show that, of the first cases subjected to these internal reviews, HMRC have found in favour of the taxpayer in 62% of the cases. I appreciate that this is something of a last-ditch resort - in that, if the independent review does not support your client, you are heading towards the Tribunal - but the very fact that you ask him to issue a closure notice might make the Inspector reconsider the grounds of his argument.