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Where Taxpayers and Advisers Meet

Discovery

Cornwall
Posts:16
Joined:Wed Aug 06, 2008 3:34 pm

Postby Cornwall » Thu May 17, 2007 2:21 am

After investigating into year 2005/06 the tax inspector has decided that he is unhappy with an entry made under vehicle expenses in the 2004/05 Tax Return and want a detailed listing. As I understand the rules of discovery they are outwith their time limit and my client has not been accused of fraud or misconduct in the completion of his later return.
Is this correct and if so are there any case histories I can back it up with.
Scot

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Thu May 17, 2007 4:04 am

The Inspector has no right to enquire into anything that was contained in a return once the window is closed - 12 months after the normal due date for filing or c 15 months after a late filing.

Tell the Inspector that you are advising your client not to provide any information as he(the inspector) is operating outside the SA enquiry statute. Ask him to fully elaborate on what discovery has arisen "after the enquiry window closed" that was not self evident before the enquiry window closed or in what way he/she considers that your client has evaded tax. They no longer have the protection of the SA legislation where within the window they can audit without fear of challenge and it is for them to provide their basis for making an assessment under S29(4) and (5) TMA and contending your client has been negligent.

If they don't back off - and subject to my review of matters - I would be happy to get involved on normal fee basis.
regards
bill@wamstaxltd.com
http://www.wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

Cornwall
Posts:16
Joined:Wed Aug 06, 2008 3:34 pm

Postby Cornwall » Thu May 17, 2007 5:07 am

Bill, many thanks for your comments, I will inform hmrc and await their comment. Will notify you of outcome
Regards
Scot

AvocadoK
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Postby AvocadoK » Thu May 17, 2007 12:12 pm

Bill
This is a really interesting one. As you rightly say, HMRC cannot open an enquiry into the SA return after the time limit, but is there anything to stop them issuing a discovery assessmemt?
Under s29(5) TMA 1970, no negligence needs to be proved - the assessment can be raised where "the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the [underassesment]". This happened in Langham v Veltema, where there was no negligence involved.
Any thoughts?
DB

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Thu May 17, 2007 12:51 pm

DB
Yes interesting tosee how HMRC digs himself out of this one because unless he has discovery that could only have arisen AFTER the window closed he is barred from having two bitesat the cherry
Will wait and see
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

Cornwall
Posts:16
Joined:Wed Aug 06, 2008 3:34 pm

Postby Cornwall » Wed Jun 06, 2007 7:04 am

Bill & DB
Have received reply from H.M. brief outling is:
'In the absence of the information requested it will be his intention to issue a formal closure notice on year of enquiry and a discovery assessment on previous year ... using his best judgement.
Should we appeal he will refer to tax case WILLIAMS'S v GRUNDY's TRUSTEES 18 TC 271. ...advise further liabilities are likely to arise to include late payment interest (client deposited monies against ammended assessment at time of enquiry)... the extent to which your client provides information is a matter for hime to decide. The enquiry may show that an offence has been committed which may warrant a penalty......'

My client has co-operated throughout and provided all the information requested, so I take the last para of the letter as being a not too lightly veiled threat.
I feel that vehicle expense figure did not require any further explanation (unless all the fuel, repair etc receipts were to be listed) unlike say box 3.63 where a number of expnses figures are used to make the total, or where estimates or valuations may be used as on other types of expenses.
My client feels and I agree that this matter should be taken to the Commissioners. Any comments?
Scot

pallet
Posts:49
Joined:Wed Aug 06, 2008 3:25 pm

Postby pallet » Tue Jun 12, 2007 4:05 am

I would suggest the special commisioners who will understand the piont you are making and will not lead by HMI like general commisioners are.

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Tue Jun 12, 2007 6:23 am

The following is then text of HMRC's own manuals

EM3255 - Reopening Earlier Years: Discovery in SA Years: Conditions
TMA70/S29(2)

TMA70/S29(4)

TMA70/S29(5)

TMA70/S29(8)

FA98/SCH18/PARA 42(1)

FA98/SCH18/PARA 43

FA98/SCH18/PARA 44

FA98/SCH18/PARA 45

A discovery assessment can only be made if one of the following two conditions is fulfilled

the further tax that is due arises from the fraudulent or negligent conduct EM5125 of the taxpayer, or a person acting on his or her behalf EM5130 or
the officer could not have been reasonably expected, on the basis of the information made available EM3260 to him or her, to be aware of the underassessment when the enquiry window closed or a completion notice was issued.
If the taxpayer considers that neither condition applies his objections can only be dealt with by an appeal against the assessment.

A discovery assessment may not be made where a taxpayer has made a return and

the return was made in accordance with prevailing practice but at a later date (after the expiry of the time limit for opening an enquiry) the Revenue changes its practice in relation to the treatment of some particular item and it is realised that there has been a loss of tax, or
the enquiry window has closed for the return/amendment, or a closure notice of an enquiry into the return/amendment has been issued and the information enabling the discovery to be made was `made available' to the Revenue before the window closed or the enquiry closed. This means that a change of opinion on information that has previously been made available EM3260 to the Revenue will not be grounds for a discovery, (the second condition above). This does not apply where the taxpayer has been negligent or fraudulent and the condition in TMA70/S29(4) is fulfilled (the first condition above).
In addition to these legislative restrictions, there are other occasions on which you should not make a discovery assessment EM3265.

If HMRC are using Williams to say that a change of opinion constitutes discovery then this would seem to be at odds with the HMRC's own manuals where it says
" This means that a change of opinion on information that has previously been made available EM3260 to the Revenue will not be grounds for a discovery,"

If you are satisfied that HMRC is out of the ball park you might suggest to them that they might care to submit their papers to the HO Specialist on SA before you ask for the appeal to be listed for the Commissioners - and yes the Specials would probably be best if the HO Specialist finds in favour of the officer.
regards
bill@wamstaxltd.com
http://www.wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

AvocadoK
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Postby AvocadoK » Tue Jun 12, 2007 10:18 am

I would advise that you simply ask HMRC what it is that he thinks he has discovered, before they go to the trouble of raising the discovery assessment.

If they really have discovered something, your penalties will be lower if you sort out the matter without HMRC raising the discovery assessment. But at the moment, from the info provided above, it is not clear whether they have made a discovery.

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Wed Jun 13, 2007 1:41 am

In my earliest posting said "Ask him to fully elaborate on what discovery has arisen "after the enquiry window closed" that was not self evident before the enquiry window closed or in what way he/she considers that your client has evaded tax." - What was the Inspector's reply?
If he did not reply ask why they have not provided their answer to a simple and plain question as clearly this wouls save everybody a heck of a lot of time and unnecessary expense. They do not have the SA protection to allow them not to say what or why when they are into the Discovery situation and if they evade the question it suggests that the Commissioners might see behind their actions as operating outside the legislation
regards
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites


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