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Where Taxpayers and Advisers Meet

"Effective rate of tax" enquiry letter from HMRC

Milbo
Posts: 45
Joined: Wed Aug 06, 2008 4:07 pm

"Effective rate of tax" enquiry letter from HMRC

Postby Milbo » Mon May 19, 2014 3:00 pm

We have received correspondence from HMRC enclosing a copy of a letter they have sent to a client regarding his effective rate of tax for the year ended 5 April 2012.

The letter states "we can see that your effective rate of tax is lower than the average for people with a similar amount of income to you. This could mean that there is something wrong with your Self Assessment tax return."

The client is invited to check that the entries on the tax return and report anything which is wrong within 30 days.

Has anyone had a similar letter?

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: "Effective rate of tax" enquiry letter from HMRC

Postby wamstax » Mon May 19, 2014 3:33 pm

This is interesting and may be in the form of a pre scrutiny letter that HMRC might send out if they were considering carrying out an exercise on the "effective rate of tax" to pinpoint tax avoidance for example. It clearly would not necessarily point to tax evasion as the effective rate of tax could not be measured from omitted or understated income.

Clearly you can usefully use this to just check back on your client's last tax return for any pointers that might arise that would give a lower rate of tax than another party e.g. higher than normal expenses (of course this could give rise to tax evasion if the expenses included false or incorrect claims.

However clearly HMRC have not opened an enquiry into your client's tax returns/accounts and it is open to your client not to respond or not as he/she sees fit on the basis that information provided could be used by HMRC to pursue an enquiry based on the response given.

Be interesting to hear from others but on the face of matters I would not do anything unless a check of the client's tax liabilities with him/her suggests that an amended tax return needs to be filed.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

jlsTax
Posts: 4
Joined: Thu Mar 29, 2012 10:09 pm

Re: "Effective rate of tax" enquiry letter from HMRC

Postby jlsTax » Wed May 21, 2014 10:12 am

We have had a similar letter last week from HMRC questioning effective rate of tax on a case.

Still deciding on the approach to take to HMRC, but this is a case where sideways loss relief claimed and white space disclosure (two pages) made concerning the loss making trade (not a scheme arrangement).

At the moment I am struggling to understand why HMRC would not have opened enquiry if had concerns - all very clear on return and comp.

Initial thought is to ignore and if HMRC take anything up argue on the discovery issue later.

Interested to hear if this letter is widespread and how people are responding.

J

TaxmanBaz
Posts: 1
Joined: Fri May 23, 2014 4:29 pm

Re: "Effective rate of tax" enquiry letter from HMRC

Postby TaxmanBaz » Fri May 23, 2014 4:40 pm

We've also had the same letter for a client.

Very interesting that HMRC are sending out letters in relation to the year ended 5 April 2012, which is now outside of the enquiry window if returns were filed on time. I appreciate that these letters aren't a formal enquiry but it seems like a rather underhanded tactic by HMRC.

In this instance, the client has offset trading losses, all very simple if HMRC had bothered to check the return with a bit of common sense.

Rather than ignore it, I think HMRC will be receiving a simple, yet stern response next week.

Whilst I don't want to be HMRC bashing (they're underfunded and understaffed), things like this are incredibly frustrating and a waste of time. In an ideal world, HMRC should have more sophisticated methods for identifying tax cheats!

B

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: "Effective rate of tax" enquiry letter from HMRC

Postby wamstax » Fri May 23, 2014 6:43 pm

Might I suggest that this might just be HMRC's new "use of computers in risk selection" but clearly it leaves a lot to be desired. I agree that when the investigation side is understaffed and underfunded to be wasting precious resources like this is frustrating.

Concern in dealing with it is who is going to pay for the fees to respond and potential for further work. Compensation will only be payable where they persist in doing wrong. I suppose that this is the risk when you engage "administration staff" in selecting cases when they have probably little or know experience of enquiry work and the requirements of the job. Glad I retired early........
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

Milbo
Posts: 45
Joined: Wed Aug 06, 2008 4:07 pm

Re: "Effective rate of tax" enquiry letter from HMRC

Postby Milbo » Wed May 28, 2014 8:09 am

Our reply was:-

"We refer to your letter dated 14 May 2014.

We note that your letter has been issued both outside the enquiry window and the date by which we are able to amend the 2012 tax return.

We have reviewed the 2012 tax calculation and believe that the reason the “effective rate of tax is lower than the average for people with a similar amount of income” can be explained by the entries on the tax return, in particular the Gift Aid payments."

It was generally felt that a reply which didn't give HMRC the opportunity to respond without opening a 'Discovery' enquiry would be the best course of action.

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: "Effective rate of tax" enquiry letter from HMRC

Postby wamstax » Wed May 28, 2014 9:33 am

There is of course the question as to what discovery and what information or consideration would not have been available within the enquiry window.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website


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