Tax investigation finalised with HMRC but there's a twist

[ny_rk]

A HMRC tax investigation into my 2008/9 return was resolved and payment was made. As a part of the settlement agreement contract, HMRC agreed the 2008/9 tax was finalised and no further enquiries or claims will be made into them. This week I received a letter from another department from HMRC asking for unpaid tax relating to a different aspect of my 2008/9 return.

Do I send HMRC a letter stating I have a contract with HMRC from previous settlement that states no further claims are allowed? Any advice welcome on how I can proceed.


Thanks

[AvocadoK]

HMRC agreed the 2008/9 tax was finalised and no further enquiries or claims will be made into them.

That seems unlikely. Have another look at the letters they sent you at the close of the investigation. They may say that the enquiry is "closed" but would not say that no further enquiries etc would ever be made. Indeed, it is more likely - if it was a full investigation - that they will have asked you to sign a certificate of full disclosure (CFD), which will carry the warning that if anything further ever did come to light, the consequences for you would be serious. The CFD covers all aspects of the return, not just the area enquired into.

In any event, HMRC have until 5 April 2013 to raise a discovery assessment into 2008/09, or until 5 April 2015 if they can make a case for careless behaviour. Their right for HMRC to raise a discovery assessment does not disappear just because an enquiry has been completed already. The main defence against a discovery assessment is that your tax return gave full information about the area enquired into, or that the assessment is out of time. If HMRC are on the ball, they will raise a discovery assessment by 5 April 2013. If not, you could point out that they are out of time for raising an assessment. But this would be an aggressive and risky strategy if you have signed a CFD, as there is then a higher risk of criminal prosecution being taken against you.

[ny_rk]

Thanks for the reply.

I signed a letter of acceptance. In my correspondence with HMRC, they said ' April 2009 tax year be considered finalised: no further HMRC enquiries or claims will be made into them'.

Maybe I'm looking at this statement too broadly but I'm trying to understand if I can use this statement as a line of defence. It is a discovery assessment and I am weighing up what my next steps are. HMRC have given me just over three weeks to pay a big sum of money.

I will probably need to talk to accountant/ tax lawyer. Does anybody have any advice?

[mullet]

Please state, in broad terms:

1. The area of your tax return or source(s) of income that were the subject of the 2008-09 enquiry.
2. The source of income underlying the discovery assessment demanding the big sum of money.
3. Whether you think that HMRC are actually correct in pursuing this matter, i.e. whether there was a source of income or capital disposal etc not covered by the 2008-09 enquiry.

[ny_rk]

Hi mullet. Thank you fo your response.

1. 2008-9 enquiry related to bank interest that was resolved.
2. The discovery assessment views loans I have received as taxable income.
3. The 2008-9 enquiry was part of a broader enquiry that included 2009/10 and 2010/11 tax years around bank interest. My returns are relatively simple ( bank interest mainly) with 2008-9 as an exception with the loan transaction. I am assuming the enquiry that has been resolved covered all aspects of the return. I concluded this from HMRC comment that ' April 2009 tax to be considered finalised. No further HMRC enquiries or claims to be made against them' . Maybe my assumption is incorrect .

Any advice on next steps is appreciated.

Thanks

[mullet]

To be able to issue a discovery assessment the HMRC officer must have discovered one of three things:

that a self assessment is or has become insufficient
that income (or gains) which ought to have been assessed have not been assessed
that relief given is or has become excessive.

The important point is that the officer must have "discovered" a taxable source. He/she doesn't have to be certain, "discover" is interpreted as finds out, satisfies oneself, has reason to believe.

Loans are not income. If you can substantiate the source then the HMRC assessment should not stand. How strong do you think your position is? Can you identify the lender(s) and the source (perhaps through a bank account) or is it that you seem to be living on very low identified/declared taxable income and you have explained other income as being from loans? If the latter and if you cannot prove that the amounts are loans, then you are in a difficult position.

[ny_rk]

Hi mullet. Thank you again for your useful insight.

I have a loan agreement issued by an employee benefit trust in 2008. My loan liability to the trust will still exist if I pay HMRC the money they want. So would my first step be to show my loan agreement to HMRC to demonstrate we are talking about loans and not income?

[mullet]

I have a loan agreement issued by an employee benefit trust in 2008.

Ah, I take back most of what I said. This is an avoidance scheme, and the likely position is that HMRC have issued an assessment to protect their position as the normal time limit for 2008-09 expires on 05-04-2013. HMRC don't like EBTs, and I can't remember the latest position as in which side won the most recent hearing - but this one will chug along for some time yet. Best thing to do is to appeal the assessment and ask for the tax to be postponed, on the grounds that litigation is ongoing.

[ny_rk]

Hi mullet. Thanks again for painting a clearer picture.

You are right. The wording you used about HMRC protecting its position before 5th April is almost word for word the letter they sent me. I did see a recent EBT case around Rangers football club in November last year where HMRC lost. Given the surrounding ongoing litigation don't understand why they have made such a direct request for money.

Should I use a tax professional to reply to HMRC or can I write them a letter asking for the tax postponed?

Thanks again for your help.

[AvocadoK]

Suggest you contact the EBT provider first. Many scheme providers deal with HMRC enquiries into the EBT as part of the service.