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Charterhouse Consultants by Les Marston

In the latest guest article for Taxationweb, Les Marston of Charterhouse Consultants sets out a survival plan and some words of advice for taxpayers who are the subject of an Inland Revenue investigation.

INTRODUCTION

Know your rights.

Have your affairs in order. Being up to date and orderly is ESSENTIAL.

Learn the rules of Engagement – as they can be used to your advantage.

Get professional help. Don’t be overawed or intimidated.

Don’t always assume the Inland Revenue’s interpretation is correct, they are not always correct and may be challenged.

Know the tactics being employed. You have rights of appeal and entitled to request copies of notes made at meetings with the Revenue which are now not offered unless requested.

Remember that the Revenue have a strong specialist team of trained investigators, so you must be aware of this and have a strong team to combat this to see fair play.

Don’t get down or feel sorry for yourself, use your energy to direct your skills to defend yourself.

Don’t get emotional. Sound and cool heads are needed.

The Revenue have used investigation techniques over the years and their specialist offices have had great success over the years with well publicised Trials such as Lester Piggott, the top jockey, Ken Dodd, the entertainer.

There has been a huge increase in compliance staff since 1997 and the amalgamation of the Social Security Contributions office and Revenue offices has led to an increase in compliance visits to unsuspecting businesses and much more intensified checking into wages, and expenses. For example staff entertaining is limited to £75 per employee per annum if this is exceeded then the whole amount is taxable!!

In the period from 1997 to 1999, the Revenue used its emphasis on enquiries into larger companies, international dealings and cases of tax avoidance and suspected serious fraud. This work was mainly carried out by the Revenue’s top team of investigators the Special Compliance Office.

Now since 2000, we are seeing the Revenue’s attention being directed from the various network of tax districts since the transition to self-assessment, with a large deployment of staff to collection of tax compliance and investigation and enquiry work.

The Government’s “Spend to Save” initiative is being driven by demanding higher returns of tax and the results are monitored and publicised, and hence substantial pressures are being levied on the Revenue and H M Customs & Excise for improved returns of taxation.

The use of specialist Information Technology and the co-operation between tax and vat offices has resulted in many instances of a “Double Whammy” for a lot of taxpayers and unsuspecting businesses. So vat takes its chunk plus interest and penalties which are not deductible against taxation, and then taxation bites plus interest fines and penalties are extremely heavy for errant parties and co-operation is necessary to limit these charges, and specialist advisers can assist in having these reduced substantially.

The Government now believes that tax avoidance is out of control it is determined to be seen to be countering this and getting increased revenue into its coffers.

The Courts too, are now being less of a referee and more of an ally to the Revenue.

In the case of IRC v McGuckian that was heard in the House of Lords in mid 1997 restated the Inland Revenue’s rights to analyse transactions by ignoring any artificial or non-commercial steps involved, and this gave the Revenue new strength in the fight against the tax avoidance sector.

A further case highlights this, that in a prosecution case with Brian Allen in 1998 stressed that technical ruses would not be effective, even with the benefit of what appeared soundly based legal arguments for the defence, the Revenue convinced the Court that Mr Allen was a hardened tax evader and deserved punishment. The seven years prison sentence levied clearly illustrates the danger of open evasion.

RULES OF ENGAGEMENT

LEGISLATION / CASE LAW / STATEMENTS OF PRACTICE / CODES OF PRACTICE ADOPTED

LEGISLATION

Taxes Management Act 1970 (TMA1970) - This is where the main body of legislation may be found and this has been added to by Income & Corporation Taxes Act 1988 and Taxation of Chargeable Capital Gains Act 1992.

Section 9 TMA 1970 for instance, handed the Revenue the power to make random enquiries into any return. Section 128 of this act also put the onus on the taxpayer to maintain records.

Section 19A of this act, gave the Revenue the right to call for documents and certain particulars during their enquiry.

DEFENCE

Section 19A(6) gives the taxpayer the right of appeal against a section 19A Notice and also section 28A(6) sets out the taxpayers right to seek conclusion to an enquiry.

The Revenue formally request documents and information merely by letter, and does not normally have to use its legal powers to enforce this as taxpayers not wishing to alienate the Inspector hand this over in a spirit of co-operation.

Most taxpayers are unprepared and do not know the consequences of these demands or whether they must hand over the documents requested.

Specialist help is often necessary to enable taxpayers to know their rights and their right of appeal before independent special or general commissioners, if as often happens a disagreement exists, and a knowledge of case law is often required.

The Revenue’s Statement of Practices sets out ITS INTERPRETATION of the rules and are not based on law, but is their views and this can be opposed.

TAXPAYER DISTRICT OFFICE (TDO)

These offices are now the largest and best organised of the tax offices of the Revenue’s network of offices, and the main work is focused on compliance work and investigations. These office are required to refer more serious cases to “Special Compliance Office” who deal with the largest and most complex cases of tax avoidance and suspected tax evasion. This Special department deals with the prosecutions carried out by the Revenue,and is staffed by specialist investigators who are highly trained with a proven successful track record in investigation work over a number of years, and highly skilled and technically knowledgeable. This is a formidable team so expert help is required if you come up against this office.

The Revenue’s new approach is clearly drawn to successful businesses and Inspectors are given more scope and lighter case loads to enable them to devote more time to concentrate on those cases where there is the highest risk of error or evasion of tax.

The old targets of taxpayers such as publicans, taxi drivers etc are no longer deemed worth the effort, so a more concentrated effort appears to be being focused on company Directors and other highly paid professionals, for instance the IR35 Legislation against I. T. Specialists and consultants has brought a substantial income to the Government’s coffers, where substantial amount of income tax and Nic was being legally avoided by the use of Limited companies and trading partnerships.

The Inland Revenue now publish a booklet “Working together” whereby professional accountants and tax advisers can make representations to them to endeavour to iron out problems that have been encountered between the Revenue and the Professions.

In the March 2002 issue (No 8), there is a statement of intent following the Publication of the report of the Joint Inland Revenue and Chartered Institute of Taxation review of October 2000.

There are comments regarding the opening letters in particular the length of these issued by Inspectors. Requests for private bank account details. Requests for interviews at an early stage of enquiries. Faster working arrangements.
This concentrated on full “in depth enquiries”. A framework has now been devised which the Revenue’s tax offices will be encouraged to comply with.
For example both enquiry staff and agents should be encouraged to work within a 15 day turnaround time on dealing with correspondence. Time limits of 30 days will be agreed as a norm, with a flexibility view taken, where warranted by circumstances.

Interviews with the agent, after the initial inspection of the records by the Inspector, is being encouraged thus hoping to lead to a better understanding of the business and how the accounts are constructed. More flexibility should be adopted and meetings held at business premises this being less intimidating than Revenue offices to taxpayers who are often worried and will agree anything to get clear of the Revenue’s attention long before necessary.

Clearly the more representations made by a recognized body of professionals has brought some improvements, but there is still a long way to go.

COMMENTS WELCOME.

Charterhouse Consultants