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Sharing the risks

9th Nov 2009
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Rebecca Benneyworth has managed to get a sneak preview of two new risk toolkits produced by HMRC. Here are her views on them.

HMRC has now launched two more toolkits for taxpayers and advisers to help them identify key risks associated with tax returns, and take steps to minimise those risks.

The design of the toolkits is part of HMRC’s strategy to support the completion of tax returns and prevent errors from arising rather than relying on compliance checks to spot errors after they have occurred. In principle this approach should pay dividends in the long run, as it works on the basis that most taxpayers want to pay the correct amount of tax, and then can reserve compliance effort for those who deliberately underpay.

As part of the “taking care” picture the opportunity to make use of the toolkits to highlight difficult areas within the return must reduce the overall risk that a return is incorrect. While entirely optional, both businesses and agents using the toolkits must by definition be taking more care with their tax than those who do not. So if, despite the support of the toolkit, the return is subsequently found to be incorrect, no penalty could apply. It will be interesting to see whether fee protection insurers request details of which toolkits a practice uses before setting premiums.
So what of the two current toolkits? We have had a sneak preview, and here is what we thought.

Capital Gains on land and property

This toolkit summarises the key issues which HMRC view as risks. These are not necessarily the most technically difficult areas, but are the aspects which compliance activity frequently identifies as incorrectly treated. Each toolkit starts with an introduction, and the “meat” is in the checklist and supporting guidance. The checklist for the CG kit runs to 28 items divided into “Disposals”, “Expenditure”, and “Reliefs”, of which PPR is the most significant, with 9 risk factors in all.

Each risk item is supported in the accompanying notes by a full explanation of the risk, together with mitigation steps in relation to the risk and a brief explanation of the issues. The explanations are linked back into the CG Manual for fuller explanation.


The first risk dealt with by the toolkit relates to the timing of the disposal for CGT purposes, and runs as follows :

1. Has the correct date of disposal been established?

A gain may be returned in the wrong tax year if the date of disposal for CGT purposes is not properly identified. Where the date of disposal is not correctly identified and the gain is actually realised in an earlier or later year, there may be significant tax consequences. For example, the rate of tax charged could be affected, as could the availability of reliefs or losses.

Ensure that you have correctly identified the date of disposal. The date of disposal will normally be easily identifiable but there are specific rules which determine the date of disposal in particular circumstances. See CG14260 for more guidance on the specific rules.

Where an asset is disposed of under a contract, the date of disposal will depend on whether the contract is unconditional or conditional. Where the contract is unconditional, the date of disposal will be the date of the contract. However where the contract is conditional, the date of disposal will be the date on which the conditions are satisfied.

For further guidance see CG14270+ 

Some of the explanations are longer, and it is important to remember that in some cases the explkanation will show HMRC's view of the correct treatment, which may be an interpretation of the law rather than a simple statement of law. So in some cases agents in particular may take issue with some of the guidance, but at least you will be able to identify where you are at odds with HMRC.

One of the most interesting points in the CG toolkit is the focus on valuation. HMRC regard this as "the biggest single area of risk, accounting for a large part of our compliance checks." The guidance identifies various steps that might be taken when a valuation is necessary and it would be worth focussing on the appointment of a valuer - and the instructions under which he operates as a key area. More details of specific dangers here are included in the explanation of the toolkit.

Private & Personal Expenditure

The second toolkit available to us for review covers Personal/Private Expenditure, and concentrates on the main areas where the split between allowable business and disallowable private expenditure is frequently in dispute. Once again, the preamble to the toolkit summarises the biggest areas of risk of mis-statement, and the checklist sets out all of the areas where compliance issues arise. The checklist runs to 25 items, ranging from business travel through to adjustments in respect of personal tax work billed by an adviser. Each is covered in the same style as the CG toolkit, with a detailed explanation of the risk, mitigating steps and an explanation. For example, question 13 is on meals :

13. Are all expenses claimed for meals and subsistence wholly and exclusively for business purposes? 

The cost of food and drink is not generally wholly and exclusively for business purposes and therefore normally not allowable. There is however specific provision at ITTOIA05/S57A which gives legislative effect to the longstanding practice of allowing modest subsistence costs, if the trade is by its nature itinerant or a journey is undertaken that is outside the normal pattern.

Establish whether any expenses have been claimed for meals or drinks and ensure these are disallowed with the exception of those incurred in the limited circumstances noted below.

Extra costs for food and drink may be incurred for business purposes where the nature of the business involves travelling from place to place, for example a travelling salesperson, or where there are occasional business journeys outside the normal pattern.

Where the costs incurred are for employees’ subsistence these will normally be allowable although other employment taxes and National Insurance Contributions may be due.

For further guidance see BIM37660 and BIM47705

Expenses incurred for entertaining are normally disallowed by S577 ICTA88 see Q16+ below 

Summary - thumbs up or down?

The sharing of risk factors is certainly a major development which has come about through the compliance reform forum, at which tax agents participate in the design of new compliance initiatives. Time will tell whether these toolkits become widely adopted by agents, but they certainly provide food for thought in identifying the main areas which HMRC see as risky. The toolkits will be updated every year to reflect changes in tax legislation, so are clearly intended to be a feature of our work in the medium term. I am sure there will be some who ask "Why should we do their work for them?" But perhaps to the more enlightened this presents an opportunity to ensure that risks of compliance adjustments are minimised - to my mind this is a win for us and our clients. So a thumbs up from me.

Replies (5)

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By vinylnobbynobbs
09th Nov 2009 11:52

Tools for HMR&C?
Having just received this morning 3 simple repayment claims calculations from HMR&C which are are incorrect I wonder whether we should help the Revenue by sending them toolkits? I even sent in my own calculations of the refunds and schedules of income.

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By carnmores
09th Nov 2009 20:49

hadnt seen this till now

glad you taken your view

 i agree with you mainly

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By User deleted
09th Nov 2009 21:35

We will have to see, Rebecca.
We will have to see Rebecca.

Any sane adviser (or taxpayer) would wish to know what HMRc regards as risk areas, and what HMRC is looking for.  To that extent, any disclosure and transparency is of course welcome.  It should benefit all (including HMRC) which represents a win - win for all parties.

But of course the objective of the toolkits is to push folk into accepting HMRC's view of things as well as make them aware of them.   It's a possibly fine line, but not really  (given the comments made before they came out, and the examples thus far).  It is not a cynics view, it is an analysis of their statements and views espoused though policy pronouncements and WT groups.  (And of course your reference to insurance only underlines the very point ; toe the line or else.)

To the extent that taxpayers and advisers wish to accept HMRC view, that's fine. 

It's true that in an ideal world, all parties would know, simply and uncontroversially, where exactly they stand in tax law for every single detail.  But even with the best endeavours of all concerned, that ideal world is a long way off.  Do the toolkits bring that day nearer? 

If the toolkits develop "merely" as "layman's versions" of statute, case law and HMRC interpretation thereof, they may be neutral or benign.  I just am a bit cynical that it would be like this, but let's see.

But let's be clear on their objective, else we will succumb (yet again) to spin.  HMRC wishes to use the toolkits to establish what they want done, not necessarily what the Government (sorry, I should say Parliament, but that increasingly becomes a stamp) or the Courts want done.  To the extent that coincides with tax payer's interests (by clarification of HMRC approach) that's fine.  We'll see what else it is used for before we get carried away with how useful they are.

My money would be on it being another step along the line of "we only want you to pay the right amount of tax".  Yep, that's good.  Er, well, with some important caveats to say the least!!

They are designed to be a boon to HMRC.  Fair enough (my earlier comment was meant literally). To the extent that they transparently and more simply clarify what HMRC already state (though their increasingly comnvoluted manuals) as their views, they can be useful to a practitioner,  small or large.  

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By User deleted
11th Nov 2009 15:13


When I worked for one of the Big 6 we had these except they were called 'aide-memoires'.  Each question had to be signed off by the preparer to show that it had been considered and by the reviewer.   I think all of the Big 6 used them.  They became part of the review process and eventually became a costly paper exercise in many cases.  They were not without merit for prepares if they were targeted.  It was when they decided to produce one for every aspect of return and computation preparation that they became an administrative chore.

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By John Bower
24th Nov 2009 14:28


Rebecca Benneyworth’s sneak preview of the HMRC toolkit provides a valuable insight into HMRC’s strategies on tax risk analysis. At CCH Fee Protection we hope that the toolkit will in fact give the professionals and their clients an increased advantage in filing a correct and accurate return. It’s still early days to know what effect it will have but we see it as a positive step towards mitigating risk for accountants and their clients.

Rebecca commented that it would be interesting to see whether fee protection insurers request details of which toolkits a practice uses before setting premiums.The premium for fee protection, as in any kind of insurance, would of course be affected by the perceived level of risk of a claim. CCH Fee Protection would need to look at any factors that may affect the frequency and cost of claims.  John Bower,Managing Director, CCH Fee Protection, a Wolters Kluwer business

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