Self Assessment: RIP By Keith Gordon

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Best Tax feature 2008

Keith Gordon, barrister considers how the Self Assessment rgime will be irreparably damaged by the rules in Schedule 36 to this years Finance Bill.

Background to Self Assessment

Given that Self Assessment was introduced over twelve years ago for taxpayers other than companies and over nine years ago for companies, it is probably fair to say that most current practitioners have a fair understanding of how the SA rules operate in practice. In short, to use the example of an...

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10th Feb 2009 13:08

Accountancy bodies play dead.
I am exasperated that the professional bodies just play dead to this
unbelievable situation. Why did they not stop this in the consultation process.
Without us the revenue system would not function and dear Gordon
would be dead.
Whilst not in any way advocating tax dodging the idea of an enquiry window seems and is totally fair. You play by the rules-submit your tax return and beyond the window all is clear. Taxpayers and agents need closure and finality to simply clear the decks.
By allowing and agreening to suppot this madness the accountancy bodies have totally let thier members down . WE are now the subservient powerless pawns agreeing to be mauled by young in experienced idiots from the tax office whose egos will be inflated by the
powers given to them which will only have the effect of increasing friction ,disrespect , and division. Roll on retirement.

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By Anonymous
18th Jul 2008 12:48

Oh happy days....
when form 46 arrived and the Inspector had agreed the accounts.

The vital thing about the old system was the authorities acknowledged tax was a very complex area but provided both sides could agree, then the taxpayer had met his responsibilties. It was then much easier to self-assess than the ridiculously styled, 'Self Assessment' we have now.

Once that contract was broken, it was only a matter of time before they reneged on the assurance of an enquiry window.

Now they wan't to restrict your rights of appeal and drag up matters you thought were long since closed.

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By wdr
23rd Jul 2008 14:54

Veltema is dead anyhow
The Special Commissioners decision in
Mrs Lavinia Frances Corbally-Stourton v Revenue & Customs [2008] UKSPC SPC00692 (16 June 2008)

has effectively removed the protections which self-assesment supposedly introduced, restoring the discovery process to the pre SA postion.

Despite 'white space 'disclosure. the Commisioner found:-

"Thus in my view it is not required that the officer be aware that there was in truth an insufficiency or that he be aware that it was beyond all reasonable doubt that there was an insufficiency, but merely that the information should enable him to conclude on balance that there was an insufficiency. Again a mere suspicion would not be enough, but, a conclusion in relation to which he had some residual doubt may well be sufficient. If he could reasonably have been expected to have come to such a conclusion before the later of the times mentioned he is precluded from making a discovery assessment

'It seems to me that an inspector equipped with a reasonable knowledge of tax law could reasonably be expected to conclude from the Appellant's disclosure that something was going on, and that Mrs Corbally-Stourton had participated in a tax scheme. It would be reasonable to expect him to wish to question the workings of the scheme and the genesis and existence of the remarkable £1 billion loss. But he would also be aware that some tax schemes work and deliver the benefits claimed. .......In my judgment an inspector could not reasonably be expected to conclude from the clear hints that there was a scheme that it was unlikely that it would work.

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21st Jul 2008 17:34

Slight tit[***]-for-tat
At least the taxpayer might be able to make an FOI request in answer to an impending HMRC swoop ...

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21st Jul 2008 15:51

Worth reading the consultation
It is worth reading the HMRC consultation document where they state that the new information powers “should allow HMRC to make reasonable checks before a discovery assessment, without disproportionate reductions in taxpayer certainty”.

As they acknowledge:
firstly, information can be demanded under the new powers before making a discovery, and therefore can be used to make the discovery, and
secondly there will be reductions in taxpayer certainty (ie. the existing safeguards provided by the enquiry window or by the need to have made a discovery have ceased to have any practical application).

Instead of being restricted to demanding information after making a discovery, HMRC will now be able to demand it to see if this leads to a discovery - a very different proposition altogether.

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21st Jul 2008 15:30

Practical difference
The requirement that HMRC had "made a discovery" will, I think, turn out to have been a very much stronger safeguard than the need for them to show that they "suspect that tax may not have been assessed."

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21st Jul 2008 15:11

Even worse than that
It looks to me that in the circumstances you describe relating to a tax payer, under Sch 36 there would be nothing to stop an officer conducting an inspection with 7 days notice to satisfy himself on the point at issue, again without any oversight.

If he could persuade his boss he could even do it unannounced, they don't have to get the leave of a tribunal. The only redeeming feature of this is that if the officer was "deliberately obstructed" no penalties would be in point unless a tribunal had authorised the inspection.

Presumably if an inspection failed and he didn't fancy seeking tribunal leave, the officer could fall back on a para 1 notice and issue penalties for non compliance though there could of course be no grounds for an appeal to the extent that the notice seeks statutory documents. Answers on a post card if anyone knows what they are.

Until whatever "trust me" safeguards that HMRC intend to introduce to curb the enthusiasm of its officers are published, a wide range of disturbing potential abuse scenario's can be envisaged.

Looks like there will be plenty of work for barristers and tax investigation specialists fighting for improved taxpayer and third party rights under the new system!

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21st Jul 2008 15:02

I must be rather dim but.....
I cannot see that much has changed.

If HMRC believe that tax has been underpaid then they can issue a discovery assessment against which one can appeal.

When Sch. 36 comes into force, If HMRC believe that tax has been underpaid then they can first issue a "Taxpayer Notice" against which one can appeal. HMRC will then have to convince the First Tier Tribunal that that they “have reason to suspect” that too little tax has been paid or too much tax relief has been given. If they cannot, they are going to find it hard to issue a discovery assessment.

So I cannot really see that anyting has changed. There never has been any finality with Self-Assessment: it was always a myth.

The only difference I can see is that HMRC have a right to ask for information before they issue a discovery assessment. That doesn't mean that they are entitled to it: that is a matter for the First Tier Tribunal.

It seems that HMRC are using S20 notices more and more anyway and the changes at least give a right of appeal.

Please tell me I have missed something!!

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21st Jul 2008 14:48

Very helpful analysis
Quite agree! And all done under the pretence of preserving the enquiry window, "a highly regarded safeguard" on the part of the accountancy profession, as established by HMRC themselves in their consultation process. Records will be open to inspection at any time and unless they are flawless the inspection is likely to lead the officer to suspect that tax may not have been assessed. If the enquiry window is open, information will be demanded as part of an enquiry after issuing an enquiry notice, and if it is closed information will be demanded as part of the discovery process. Either way, HMRC will be able to start an enquiry and demand information at any time as long as they suspect that tax 'may' not have been assessed.

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