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Ten rules for tax enquiries. By Simon Sweetman

25th Apr 2008
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AdviceOn surviving a tax investigation. Simon says: These rules are written for agents: I tend to take the view that anyone who tries to handle their own S.9A enquiry has left themselves entirely at the mercy of HMRC and is doomed to failure...

  1. Deal with that opening letter (and the others) as soon as it arrives

  2. Keep your client informed at all times

  3. Don’t go to meetings without an agreed agenda and until you know your client is happy with it

  4. Don’t let your client answer questions about his business or lifestyle unless he knows the answer. Don't be pressured.

  5. Don’t complete a “lifestyle questionnaire” or answer questions about private expenditure – if necessary take them away for research

  6. Don’t let your client hide things – especially things that HMRC are likely to know about. Be upfront.

  7. Always be ready to go to the Commissioners

  8. But also be ready for the deal

  9. Keep on top of the enquiry – don't let it drift

  10. Don't supply private bank statements unless the records have been proved faulty

None of these rules are unbreakable, and the most important thing is not to handle the case by numbers. Keep thinking.

***

Top tips
This week is all about tax investigations: Related links include: Investigations: The taxpayer's story a look at what catches out the unrepresented taxpayer, whilst top tax lecturer Rebecca Benneyworth has compiled her list for the aid of unrepresented taxpayers.

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Replies (17)

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By Anonymous
21st May 2008 17:53

I'm no lawyer but...
...I do note that most reputable organisations to whom I speak on the phone give me a specific warning that they may record my conversation. Most people therefore have a (legitimate?) expectation that they will be warned. It seems anyway to be an ethical and fair thing to do.

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By AnonymousUser
08th May 2008 11:36

Trevor
That's really useful to know. I had not previously considered the distinction between recording your own conversations, and those of a third party.

Do you have any solution to the high cost of transcribing the resulting recording?

If this would be easier on the phone, please e-mail your number to arnoldsmithaccountant @ googlemail.com, as you suggested previously. You obviously need to remove the spaces either side of the "@" in the e-mail address.

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By AnonymousUser
07th May 2008 15:00

Trevor
Thanks Trevor. I had wondered about the admissibility of secret recordings in such circumstances and it is interesting to hear of them being disallowed.

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By AnonymousUser
05th May 2008 23:08

Trevor
I meant the latter. What about the rest of my question?

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By AnonymousUser
01st May 2008 17:30

Wat
Hence my point (i)

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By AnonymousUser
02nd May 2008 14:54

Trevor
What do you mean by "Special Commissioners will set-aside tape recordings and transcripts of Officers making blatant contradictory statements and improper offers - even when highly relevant! The SC's & GC's don't give a hoot about conduct either so watch yourself there."?

Are you referring to secret recordings?

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By Anonymous
01st May 2008 16:03

More Questions than Answers?
Fair points Arnold.
At the end of the day the Inspector should be guided by her own guidance eg EM1827

"An agenda covering the main areas for discussion at a meeting with the taxpayer should always be provided. .... It should be case specific but not a detailed list of questions and should not be seen by either party to be exhaustive or restrictive. The whole point of the meeting is to obtain information and answers inevitably lead to further questions. That is why meetings can bring much faster progress than correspondence.

It would, however, be unusual for a completely new major agenda item to be introduced at the meeting unless something unexpected is revealed during the course of the meeting.

If meetings were to be limited to specific questions the result would be a series of short meetings and a long-drawn out enquiry, which would be expensive in your own time and costly for the taxpayer"

All of which is good in theory, but...

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By AnonymousUser
30th Apr 2008 18:33

Wat Tyler
If I was hoping to trick someone then, yes I would want a meeting, but I always try to get a list of questions before any meeting (not just with HMRC); if these can be answered without a meeting, it is to everyone's advantage.

What can happen is:

(i) you eventually boil the list of questions down to those (far fewer) issues which require a meeting, which can then be run far more efficiently, or

(ii) you find that a meeting is not actually necessary.

You say "And the inspector will still want a meeting..." but what justification will he have if all his questions have been answered?

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By billgilcom
30th Apr 2008 16:54

Meetings
Hi Wat,
Just remember that unless the case is under the auspices of a CIF team (Old Hansard - COP9) the meeting or lack of it cannot be construed as a lack of cooperation
regards
[email protected]
http://www.wamstaxltd.com

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By Anonymous
30th Apr 2008 10:46

No List of Questions?
There are two reasons (not to be confused with "justifications", which are clearly subjective) why an inspector may not supply a list of questions:

1. As agent the temptation to just try and answer them will be irrestible. And if you do that you will just get into a correspondence-tennis match, probably prolonging the enquiry. And the inspector will still want a meeting...

2. If you get your list of questions, are you going to insist that no other questions be asked? If so, then it's not going to be a very useful meeting for anyone, is it? You as the agent should certainly baulk at questions that are clearly out of order, but you can't - without appearing uncooperative - object to legitimate questions that arise from unsatisfactory answers, or from answers that need further clarification.

Turn it round for a moment. Suppose you asked for a meeting with HMRC to complain about something. Would you want to supply a list of questions?

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By Anonymous
29th Apr 2008 10:46

Clients and meetings
I will never forget the incident when a nervous client cracked a joke about stashing cash in an offshore bank account during a meeting. He did not have an offshore account, and of course the inspector didn't know that and didn't get the joke.

It probably added another six months to the enquiry and my client ended up sending in all his and his families' bank statements to prove that he was squeaky clean. The irony was that I had recommended that he did not attend a meeting saying that you never know what you might say under pressure. Even he didn't know why he cracked the joke, when you are nervous you do silly things sometimes. Another good reason not to attend an interview if you can avoid it.

Nichola Ross Martin
Tax editor, AccountingWEB.co.uk

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By Anonymous
29th Apr 2008 09:11

Revenue requests for meetings with clients
Where possible arrange meetings between the Revenue and Agent only. If you know your client's affairs well enough there is very little the client can add at the meeting. In fact, the client can make things worse as they have an amazing knack of saying the wrong thing at the wrong time or, because they are so involved personally, they can say something they regret later when goaded by the Inspector.

The client's absence allows both the Inspector and agent to be more frank and will lead to a quicker and less painful settlement.

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By AnonymousUser
28th Apr 2008 18:04

Wat Tyler
What justification can the inspector offer for refusing to provide a list of questions?

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By Anonymous
28th Apr 2008 16:47

Tips for investigations
Without wishing to be controversial:

1 Never forget that the Inspector has targets to hit, there is no such thing as a random investigation, and behind the polite exterior he is out to get your client for every penny he/she can.

2 Never accept an agenda in lieu of the 20 or so pages of detailed questions that you and your clients will otherwise be ambushed with. Once those questions have been answered by post, the Inspector can send in further lists until the substance of his enquiry has been distilled to the handful of issues worthy of a meeting.

3 Always, in the spirit of full cooperation, be in no hurry whatsoever to speed the process along. Your fees are for work done and will be the same whether the investigation takes 6 months, one year or two, but the client will normally benefit from any settlement when the Inspector's line manager gives him a hard time for the case being open for so long.

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By TONY.TONYPOMFRET.COM
28th Apr 2008 16:06

1st Tax Rule for Agents
Take out a Professional Expenses Insurance policy (PEI).
My practice has all-business cover and client decide personal cover with Abbey Tax. All businesses are fully covered for Full Enquiries, but not Aspect which are usually an open and shut affair (although they would be covered if an Aspect became a Full). Business clients are invited to subscribe for "Fee Insurance", and sufficient numbers do so to enable my practice to just break even. Any uninsured clients can be invited to subscribe if a Full Enquiry is opened on them. Abbey Tax have a superb back-up service, and technical points can be discussed with their consultants on their free advice line (this is not an advert for Abbey Tax).
The best way to lose a client is to have a Full Enquiry, unless PEI cover is in place, because it is not usually easy to recover fees in full. Clients tend to have a perception that it is all the Agent's fault! With PEI in place, fees are not an issue because they are recoverable in full from the insurer which means the agent can go the extra mile to achieve results.
To quote a real life example, after a Corporation Tax full enquiry had been open for over 12 months, the Inspector was finally a settlement mood, and very little was found other than the fact that he wanted to disallow the cost of building a strong room for a cheque cashing company. My client was keen to agree to a contracted settlement presented for consideration until I pointed out that my extra time in arguing the case would cost his company nothing at all, and there could be a significant outcome, particularly as penalties and interest were at stake. He therefore agreed and I subsequently argued the case for Capital Allowances to be given as originally claimed and won. The resulting small amount of additional tax was adjusted by way of a Notice of Amendment to a Company Tax Return, with no contracted settlement or penalties. My firm's total fees were £3,750 + VAT, settled in full by Abbey Tax.
The most surprising aspect of the enquiry was that, even with the assistance of Revenue Accountants, the Inspector could not grasp simple double entry book-keeping! (but that is another story).
Tony R Pomfret
Tony R Pomfret & Associates

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By billgilcom
28th Apr 2008 12:59

Cashflow exercises
Hi Simon, can I just add an eleventh or twelfth pointer:
11. Never discuss any cashflow exercise produced by HMRC that purportedly suggest the records are unreliable without having adequate time to review it in conjunction with all other available information and evidence

12. As Simon says (cue for a song?) never be pressurised into doing anything and especially answering letters on records problems without having the record returned. It is not unreasonable to expect HMRC to return your client's business records after they have carried out their initial review. If need be THEY can keep photocopies

regards
[email protected]
http://www.wamstaxltd.com

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By Anonymous
28th Apr 2008 11:43

Be Proactive and Manage
Two comments
1. If like Simon you are a former Revenue investigator, one thing you can usefully do is (if they agree!) subject your client to a mock interview. If you still think your client is smelling of roses afterwards, then at least they know what to expect. If you find weaknesses, then be ready to lay them out in the best light before the inspector gets there and interprets them in the worst light. You will come across as ultra-cooperative, shorten the investigation and save everybody money and hassle. If you find serious irregularities, there's still time to go to a specialist. If you find that your client is willing to lie, tell him what the consequences will be...
2. An agenda is not a list of questions. The inspector should send a list of areas to discuss, not verbatim questions. If you got a list of questions the temptation to write back and answer them, then cancel the interview, would be irrestible. The exprienced inspector does not want that to happen, so she won't let it happen.

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