Please help-Tax investigation.

[mark26]

I would be very grateful if somebody out there could help me out. I am currently undergoing an aspect tax investigation for 09/10. I have been to say the least both ignorant and stupid. I have completed my tax return on time and with accurate figures for quite a few years now. Unfortunately, after that years tax was completed and sorted out I didnt think I needed the receipts etc any longer and disposed of them. I now know I have to keep them for 7 years. I obviously did not have the receipts to give the HMRC but, I did however still have my expenditure book which everything is recorded in when I purchase/spend anything to do with work. I am a self employed painter. I explained this to HMRC and forwarded this on to them. They then asked for receipts for the year 10/11. I explained to them that due to a burglary (crime reference number supplied to them) I only had receipts from this date up until the end of the tax year. Again, which I forwarded on to them. Today I received a letter from them saying " As you are aware this check is currently an aspect check looking at the cost of goods claimed only but can at any time be extended to a full check if necessary. Having given serious consideration to this case and for the purposes of reaching a negotiated settlement I am without prejudice for the purposes of settlement of the case only prepared to allow expenditure without further checks as follows" It then goes on to detail expenses allowed/disallowed. After this is detailed it then asks for a reply within 21 days. Then after this is another paragraph stating "with regards to earlier years HMRC's view is that if your business was operating in the same way during the period of the compliance check as it was in earlier years then it is responsible to conclude that errors which arose during the period of the compliance check were likely to also have arisen in earlier years. To eneable me to consider the position regarding earlier years further please telephone me on the above number to discuss this matter". Please help!!!!!!!!! What do I do? do I need a Tax advisor? how much is it going to cost me for a tax advisor? If I agree to what they are suggesting does this stop the check full stop or will they still investigate the earlier years? What is the difference between an aspect and full check? As a sole trader I dont know what other information I can provide them with. Thank you to anyone that offers help.

[pawncob]

Yes you need a specialist. HMRC are (as usual) trying it on, by assuming that any errors found in this year's figures have also occurred in previous years. There's no evidence for this, it's just an assumption. They'll disallow the same percentage of purchases for the last six years as they have this year, so whatever the tax additional liability for this year, multiply it by six and then add interest and penalties. Get an accountant/tax adviser. It'll save you money because he'll resist HMRC's piracy.
It has already ceased to be just an aspect enquiry.

[mark26]

Thank you for taking the time to reply. If HMRC are going to check back over previous years then why have they asked me to telephone them to discuss this? HMRC are aware that I no longer have the receipts from previous years. Also I do not know why they have disallowed some expenses when the things I claimed for are allowable, ie small tools etc. I know all they had was my expenditure book but, I can't understand why they have allowed some and disallowed the others. Thanks again for your reply.

[Kidderminster Tax Advice]

Hi Mark.

I agree with the last contributor that you do need some professional advice to ensure that you achieve a fair outcome to HMRC's enquiry.

However, at the moment it seems that HMRC have not extended the enquiry from aspect to full and if you can keep it that way, so much the better as it should be possible to conclude matters more swiftly and so more cheaply for you in terms of professional fees. My reading of HMRC's letter to you is that they are holding over you as a threat the possibility that the enquiry may become full in order to get you to agree to sign up to a settlement that may not be a just or fair outcome based on the facts you have described. It sounds a bit of a "try on" from HMRC to get you to settle quickly out of fear of contesting their views and to maximise the tax, interest and penalties they get from the enquiry. Sadly, such aggressive tactics from HMRC are becoming more commonplace as they seek to increase their yield from enquiry work.

A specialist adviser in tax investigations / enquiries should be able to help you achieve a fairer outcome by arguing your case effectively with HMRC. There are many such specialists and you should be able to find one either via this site or via a general internet search. I run a consultancy that handles enquiry work and have a great deal of knowledge of HMRC's approach and working methods as I am a former tax inspector myself. I'd be very happy to have a chat about your problem and to help you sort it out if you wish. Please feel free to view my website at www.k-tax.co.uk and to contact me if you'd like to talk things over.

[AvocadoK]

Hi Mark
HMRC often tell people that they cannot have tax relief for expenses for which the invoices have not been retained. There is no rule in tax that says this, and Inspectors of Taxes are forced to admit this fact when challenged. I mention this as one reason why you need advice from a specialist who is used to dealing with investigations - i.e. to make sure that HMRC don't take advantage of the fact that you don't know the rules.

As to the 21 day deadline, this is extremely short. In my experience, HMRC usually allow 40 days, and are flexible on time limits if you explain any delays. I suggest you write to tell them you are taking professional advice, and that your adviser will be in touch.

Regards
AK

[Kidderminster Tax Advice]

Hi again Mark.

How did your conversation go with HMRC? Were they any help or still just as intransigent?

[wamstax]

Hi Mark,
This is a complete try on by the officer as is shown by his request for you to phone him so that he can bully you into accepting his proposals which on the face of matters may well be just a case of this is what I am disallowing and you will either accept it or face the threat of me opening earlier years.

Clearly if he has not provided the basis on which he is disallowing any expenses then he has failed to carry out his first duty which is to help the taxpaying public to understand what he is doing and why. If expenses were for example being disallowed because they were not for the purposes of your painting trade and were considered personal and private that would be a problem for you if you had done the same in years gone past. However if he was suggesting that you were not getting the expense because you didn't have an expense voucher then that is quite another matter and not supported by legislation. After all unless he can show that your expenses book was inaccurate or false you did in fact retain records sufficient to enable you to make a coreect return. OK you don't have the B&Q receipt for the paid brush but you certainly have your book and you may in fact have other evidence in the form of paid cheques (preferrable) or cheques tubs (poor second choice) or credit card vouchers etc etc.

If he doesn't tell you why he is disallowing an expense then clearly you are not in a position to agree his proposals...... Additionally there is no requirement on you to phone him and you are perfectly entitled to have matters dealt with by correspondence so that you have time to consider matters in a proper and timely fashion without the necessity of stress and potential bullying. I assume from what the officer has said about a negotiated settlement that the sums he sees as beign involved are enough to consider interest and penalties in addition to the tax (and presumably for 6 years earlier) so you are probably best seeking out some experienced advice - at least for an educated chat - but possibly also for cost effective handling. Sometimes all that might be needed would be a short response that you do not understand firstly his reasons for seeking to disallow certain amounts and also that given his comments about earlier years you would be inclined to seek professional help if he was to follow this avenue. A short one year settlement without prior years action could even be the most efficient method of settling matters

Pleased to chat if need be

[mark26]

Thank you very much for taking the time to reply. I have enlisted the help of a tax advisor, and I will post the outcome on here in the hope that it may help someone else in the future. Thanks once again.

[SamDineWithMe]

What was the outcome?