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Let's not be beastly to HMRC (well, not all the time). By Simon Sweetman

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7th Jul 2008
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Simon Sweetman looks at tax enquiries from "the other side of the fence.

I was talking this week to a bunch of HMRC Inspectors with some experience of working enquiries into small business. We are so used to moaning about the way in which HMRC conducts its enquiry work that we sometimes forget that they are not always the offenders here, and that while they can sound off within the Department their views do not come into the open. A taxpayer can open a website and chunter on at length about his experiences, but officers of HMRC cannot go public about their grievances.

I had been surprised recently to discover from HMRC that the average time it takes them to get the first complete reply in the average enquiry is 90 days – when we complain about the length of small business enquiries we need to bear this sort of figure in mind.

Inspectors feel frustrated by the system, with some of them feeling that the new powers HMRC are taking are still insufficient or that the requirements for record keeping are not stringent enough and penalties for poor record keeping not enforced. In particular they feel that they are hampered by the advice given by the touring tax specialists, which is interpreted by agents as “never go to a meeting with HMRC” and “never supply the records, just make them available somewhere as uncomfortable as possible”. So they believe that there is a culture of obstruction and non-cooperation among accountants when working enquiries. In reality I suspect this is more to do with inexperience and nervousness then deliberate obstruction. And of course, volume of work – who does the thing they don’t understand when there’s a pile of work they do understand to be done?

There was one thing different about these Inspectors from the ones I used to work with. There are twice as many small businesses in the UK as there were 25 years ago, and increasingly those people who enter HMRC will have connections to small business, and that personal knowledge helps to break down the stereotypes of small business as careless fiddlers. It will also mean a clearer understanding of how small business operates in the real world.

Big changes are happening in the world of compliance. The S.9A enquiry for small businesses will not disappear, but it will become – has already become – substantially less common. HMRC is aware that there is far more money to be had in the bulk areas – offshore and onshore accounts, rented property, and so on. It is going to be much more likely when you get a S.9A enquiry that there is something in it, and if there is not and you can explain why not then there is a good chance of a rapid closure. If the “openness and early disclosure” pilot is a success – and early indications are that it is – then the game of liar’s poker than characterises the enquiry at present may disappear: which can only be a good thing.

Perhaps there is a light at the end of the tunnel after all.

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By Anonymous
22nd Jul 2008 10:52

The other side
It's interesting to read Tax Man's point of view but it may that the paranoia encountered is little to do with the Enquiry. It may be due to the fact that small business is already drowning in legislation and taxation long before the Inspector calls. As Tax Man already knows, most small business owners would love to be earning £30k.

http://www.fsb.org.uk/documentstore/filedetails.asp?id=226

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By dilberts
29th Sep 2015 14:41

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By Nick E Morgan
11th Jul 2008 16:12

Reply to Essex - Keep it Real
Essex Man, would you be brave enough to give your real name and practice details so your clients can find out about the views you hold?
Nick Morgan (my real name) at www.tax-hell.co.uk (letting real people know what HMRC is really like).

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By Anonymous
11th Jul 2008 16:21

Fair and blanced (sic)
Firstly, if you live in a greenhouse don't throw stones.

Secondly, whilst my tongue is somewhat in my cheek, I do get severely irked by the high handed attitude of HMRC employees - the next one that tells me that my client should have put money aside to pay his tax is likely to get a rocket that will hopefully bring him into the real world that doesn't have holiday pay, sick pay and indexed linked pensions you can draw whilst young enough to enjoy them!

I have no problem with tax per se, but naively I thought the state was here to serve the people! As accountants we are constantly told our fees should be based on value added, why not the same for the government and tax?

It seems to me the higher the level of tax, the higher the level of state squandering the higher the level of tax evasion - funny that.

And this is THE best country in the world, it's just the a*******s that are (or want to be) running it (into the ground) that are the problem.

Finally, like most peolpe, I'm here to pay my mortgage and feed my family, any thing else is a by product - if I wanted to balance things I'd have joined the circus: And if I could start over I would of chosen a real job that actually did something useful, but still its one step up from being a tax man I suppose.

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By Anonymous
11th Jul 2008 09:54

A question of balance
It seems to me that all that Simon tries (mostly with success) to do is to provide a fair and balanced commentary. I'm sure he accepts that he is likely to be criticised from a viewpoint that is not fair and blanced.

It is patent nonsense (and perhaps it was written with tongue in cheek) to suggest that taxation exists solely for "parting a hard working, risk taking, job creating entreprenuer [sic] from his just rewards to distribute to the lazy, idle and workshy". Tax is a necessary evil. If your house catches fire tonight - which God forbid - are you going to nip out and buy a fire engine and tackle it yourself?

We live in one of best countries in the world. If you don't believe that, go to Sangatte and see how many people want to join us. Tax is the price most of us pay for that.

So let's turn the question round the other way. Did any of us embark on our careers with the aim of abetting someone who deliberately seeks not to pay a fair share of the costs? Of course not. What we are here for is to balance the rights of the state with the rights of the individual. Especially, if that balance seems to be unfairly in favour of the state, we have the opportunity and responsibility to correct it. Anyone disagree with that?

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By clive griffiths
10th Jul 2008 11:51

Our Take On Tackling Inspectors.....
It is all about manoeuvres really. Very rarely do we commit clients to a formal interview with HMRC. It's not nice, it's not clever. That does not apply to any CIF cases of course. We offer a client an "aide memoire" for the cases well in advance of when a formal meeting takes place.

This may seem silly, but here is our memory list offerred to clients only IF a meeting is in our view likely to be of benefit to them. That's rare though -

Don't fold your arms
Don't place your hand over your mouth
Don't look at your feet
Look the inspector in the eye
Don't slump down in the chair
Answer questions slowly, with breaks
Do not allow yourself to ramble when asked a question
Speak in small sentences
Never suggest a question
If unsure of a question, ask what it is exactly that they want to know
Hold a pen or pencil in one hand
Have some notepaper on your knee and scribble anything down
Saying, "I can't recall exactly" is not a sin, it's an answer

It may seem odd, but it's used a guide for the more serious cases.

Tax Enquiry Company

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By Anonymous
09th Jul 2008 21:43

Someday I'll find you
Seems to be a better Noel Coward reference, sums up the Revenues attitude better!

I have always wondered about the mind set of a person who embarks on a career that has the sole purpose of parting a hard working, risk taking, job creating entreprenuer from his just rewards to distribute to the lazy, idle and workshy!

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By Mike Bassy
09th Jul 2008 21:42

GIVE THEM ALL YOUR CASH
Yet another article from Simon presenting a benign view of HMRC. I'm sure he would be much happier if everyone simply handed over all of their cash to the government - he seems to believe it belongs to them anyway.

Then we could all become one of Simon's Model Citizens.

Keep the articles coming, nevertheless. They're very amusing.

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By Accounting WEB
09th Jul 2008 12:58

Misuse of existing powers by HMRC
In my comment below I was talking of mis-use of power. In my own investigation approx 10 years ago the Revenue embarked on a fishing trip which ended with nothing but technicalities, but refused to close the process. Only a payment of £10K on a "no admissions" basis achieved this - they pointed out I would pay this in accountants fees anyway if I didn't settle. Human Rights? Don't make me laugh. The system is totally adversarial and I'd had enough of sitting up until 1am doing research and answering letters after a 12 hour day at work. At least Dick Turpin had the decency to wear a mask.

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By Anonymous
08th Jul 2008 12:36

Records
"The requirements for record keeping are not stringent enough and penalties for poor record keeping not enforced."

I think this goes to the heart of the matter; inspectors still seem unable to grasp the concept that the average small businessman is not a chartered accountant or inspector of taxes.

Why do they think the "touring tax specialists" advise against meetings and providing records? Is it because experience demonstrates that to be the client's best course of action?

Would HMRC not be better served sorting their own house out in respect of how enquires are handled rather than demanding yet more powers, penalties and burdens on business.

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By Anonymous
08th Jul 2008 12:12

Nichola
Absolutely right to pick me up on the word "rehearse" - what I meant was that the client should be probed in advance of the live meeting to establish exactly what he/she is going to struggle with.

Any criminal advocate will tell you that if there is a "smoking gun", then it's better to bring it out in the examination-in-chief and put the best possible spin on it, than wait for the prosecution to dig it out in cross-examination and put the worst possible interpretation on it.

Deliberately obstructing for the sake of it just seems to me to be vexatious and unprofessional. If the inspector is misbehaving and you have to complain formally, think how much better your complaint will run with an independent reviewer if your conduct has been impeccable...

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By Anonymous
08th Jul 2008 08:17

Been through it myself
Had an enquiry just a few years back on my own very small business in partnership with my husband. Was co-operative, responsive, full details and more than asked for, knew what questions were being implied but not asked, so answered them up front - I had nothing to hide.

After almost a year, I came to the conclusion that you never, never provide more than requested, never try and be co-operative by organising the records to make it easy to find appropriate invoices etc - make them work for it; that you should take the full 30 days to reply to their letters as they will always take the full 30 days for any response, ( I was writing back within 7 days once I had calmed down,) .....but when you have to send to the enquiry officer a copy of their own tax return guidance in order for them to grasp the technical but not too technical point you are making - an ordinary unrepresented taxpayer does not stand a chance.

As commented below, with no vestige of any "relationship" left between districts and accountants, the system has become wholly adversarial... and we are supposed to be on the side of our client!

Thank God for the Commissioners, as it took the threat of taking every single petty item to the General Commissioners, to get the enquiry closed down.

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By Anonymous
08th Jul 2008 07:25

Really?
"...ideally by anticipating the inspector's questions and rehearsing them with your client."

All very well "being prepared", but to actually coach the witness too?

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By Anonymous
07th Jul 2008 17:16

Meetings
Surely if you have your agenda then

(1) You can reasonably insist that the interview ahheres to it, and
(2) You will have had ample opportunity to prepare for the meeting, ideally by anticipating the inspector's questions and rehearsing them with your client. If you carry out proper preparation and your client still smells of roses (in your OBJECTIVE opinion) then there is nothing to fear from a meeting. If on the other hand you realise that there are weaknesses then it's time for damage limitation - which is not the same as non-cooperation.

In my experience when meetings go wrong it's often because one side (or both!) has been negligent in their preparation. Make sure it's not you.

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By ntipping
07th Jul 2008 15:18

Meetings
"In particular they feel that they are hampered by the advice given by the touring tax specialists, which is interpreted by agents as “never go to a meeting with HMRC”.......

Sorry, but I have to agree with the "touring tax specialists". I have rarely been involved with a meeting between client and HMRC which has resulted in any form of efficiency. The taxpayer (despite your firmest warnings concerning only making statements he knows to be true) is held accountable for vague recollections from several years ago and the meeting usually generates far more unanswerable questions than answers. I will not say that there should never be a meeting but I prefer them in the latter stages when HMRC has narrowed it's queries down to a few sticking points rather than allowing the Inspector to use a scattergun approach at the outset. It goes without saying that there should be an agreed and specific agenda before any meeting.

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By Accounting WEB
07th Jul 2008 14:41

who is cheating who?
It is all very well to talk about HMRC's stereotype of small business as "careless fiddlers" but what about the stereotype of HMRC as investigating to maximise tax revenue by conducting baseless fishing trips? The reason many small busineses do not practice 100% openness with HMRC is that they do not trust HMRC's motives. Once under an investigation, the business is faced with the burden of cost (non-deductable) and time whilst still trying to run its affairs. HMRC knows this and forces "settlements" by a process akin to blackmail.
Light at the end of the tunnel? Only when HMRC introduces fair play into its practices.

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By Nick E Morgan
07th Jul 2008 13:34

Seeing the Light
There is light at the end of the tunnel, unfortunately it's an oncoming train. Read the chunter-chunter-chuntering at www.tax-hell.co.uk .

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By Anonymous
07th Jul 2008 13:26

2 to tango
My approach to enquiries is to answer each point as asked where appropriate with the minimum possible detail. No useful but unrequested information is volunteered - if they want an answer they need to ask the right question. If this produces a lengthy chain of correspondence so be it.

The reason I do this now is that there is no relationship between HMRC and agents. The main problem is they (HMRC) flood us with these requests usually just prior to a significant deadline; They ask leading questions and seek to entrap; They ask for detailed breakdown and supporting vouchers for 100% of an expense heading rather tha significant items; They use a one off expense to extrapolate over a number of years; They then take these facts and twist them into an unreasonable assessment: the legal burden of proof is then on the agent/tax payer to prove they are wrong.

We are not obstructive, just protecting our and our clients a***s whilst trying to avoid penalties for filing deadlines!

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