During 2013 almost 700 prosecutions were secured against tax and benefits cheats.
There were 690 successful convictions as against 477 in the previous year. With prison sentences totaling 355 years it is clear that HMRC are serious about tackling evasion.
We have come across numerous occasions where HMRC’s task-force have requested information leading up to a tax enquiry, and whilst many people will still believe that it won’t happen to them, unfortunately it can.
Here are a few real life examples of tax enquiries we have dealt with…
Tax Enquiry – Self Employment – Travel & Accommodation
We were asked to assist a client of another firm of accountants, where HMRC had conducted an enquiry and had issued a closure notice. The notice assessed arrears dating back from when the trade commenced in 1998 through to 2013 and HMRC were seeking a settlement in excess of £100K.
Darrell took on the case and managed to get HMRC to re-open the enquiry. After lengthy correspondence arguing technical points we were able to secure a reduction in the total settlement paid to HMRC around 40%.
Voluntary Disclosure – Previously undeclared rental income
A client came to us for advice in relation to capital gains tax (CGT) arising on the sale of an investment property. Our research into the circumstances throughout the period of ownership led us identify sufficient reliefs such that no CGT liability arose, however one of the reliefs required was “lettings relief”.
We explained that having provided details for the CGT advice it had come to our attention that the property had been rented out (hence the lettings relief claim) but that we had noticed that rental income had not been declared to HMRC. We recommended a “Voluntary Disclosure” to HMRC which the client agreed and instructed us to prepare. We have used the disclosure facility and in doing so have identified all allowable expenses to reduce the taxable rental figures and suggested a penalty rate of just 10% (the lowest possible). If HMRC had uncovered the rental income prior to disclosure the penalty rate would have been in the region of 25% to 40%.
Voluntary Disclosure – Undisclosed Offshore Rental income
We are currently acting in relation to a letter from HMRC received by a client stating that they had information to suggest that our client owned an offshore property that is offered for letting.
We have assisted our client in gathering all income and expenditure information and have prepared and submitted a full voluntary disclosure to HMRC with supporting information confirming that the source of income had not previously been disclosed on advice from previous adviser due to the fact that no rental profits had been achieved until the current tax year.
DENIAL OF INPUT VAT
Following a Vat review visit carried out by HMRC it was discovered that certain purchase invoices required for the purposes of claiming input Vat were missing. HMRC initially disallowed all input Vat in relation to the missing invoices.
There was a very good reason that some invoices were missing, arising from the fact that this was a construction cost where “applications for payment” were made for continuous services and there had been a serious and vicious falling out between our client and the contractor. Due to this and the contractor going out of business prior to the enquiry it was not possible to obtain the required vat invoices. We carried a full review of client records including plans and contracts for the build and after lengthy correspondence and argument with HMRC we were able to secure all but a small proportion of the input vat claimed on the build.
FAILURE TO REGISTER
A solicitor contact of ours has recently referred a client who had received a notice of “Vat compliance review”. The client was extremely anxious about the prospect of this review and the fact that he had exceeded the compulsory registration threshold some years previously but through a lack of knowledge and a lack of advice from his existing adviser had failed to register.
We will be reviewing all records from commencement of trade to identify the correct registration date and making an application for registration followed by submission of all outstanding vat returns, to limit penalties and interest accruing. As part of this process we will be claiming all allowable input vat and assisting in negotiating the issue of vat only invoices to vat registered customers to reduce the effect of the vat arrears as far as possible.