Tax Investigation and accountancy costs

zipp

Hi everyone,

HMRC have been investigating my last tax years return for about 8 months.
It's dragging out and although I did everything by the book they just keep asking for more documents and more evidence etc.
My accountant has given me a very high bill to see the investigation through (around £3,000) and I am really in a dilemma....

I think to leave the accountancy firm now could mean I am left defenseless for the HMRC to decide they will charge me a certain amount based on their doubts about certain allowances in my tax return and then add on interest penalties etc and leave me with a nasty bill to pay.

However, I feel really let down that my accountant has chosen this time to give me this rather high bill and also feel that the company has never really helped me (as I hear some people's accountants do) to maximize my financial position and have always been pretty expensive, so I was planning on leaving them anyway before the investigation started.

I keep hearing horror stories of HMRC asking for a few thousand from investigations and then applying 'scaling back' which multiplies that amount which can end up with people having to pay crippling amounts just for minor Indiscrepancies in their returns.

Many of the questions that the HMRC are asking in their correspondence are due to allowances which I was advised by my accountant to claim in the first place such as subsistence and home as office etc. But mostly it looks like HMRC haven't even really looked at my return documents in detail because they are obviously overlooking various columns where we have submitted information that they say isn't there etc etc.

It's so frustrating because whilst they continue to drag this out and ask really basic questions which could be easily answered all this is costing me thousands!

I would really like to know if I can claim any of the accountant fees back from HMRC if they do not find anything amiss with my tax return.

Also does my accountant's fee of 3k sound over the top to see this investigation through and what do you think about me leaving them and dealing with the investigation myself?

Also any advice whatsoever regarding this situation will be a big help as I am getting quite worried that HMRC are going to decide on a sum I am allowed to claim as allowances and then multiply what they see as underpayment on my behalf and whack me with a nasty bill on top of my own accountancy fees of 3k!

I have been saving up everything I have to try and buy a place with my partner so all this is getting really stressful and could put me back a good deal.

Thanks for any help and advice
Zipp

Pennywise

zipp wrote: »

I would really like to know if I can claim any of the accountant fees back from HMRC if they do not find anything amiss with my tax return.

Also does my accountant's fee of 3k sound over the top to see this investigation through and what do you think about me leaving them and dealing with the investigation myself?

No, HMRC won't pay you back anything unless you can prove that you've incurred extra costs because of their negligence - if they're simply asking questions to support your return, that that's perfectly within their right to do so and they don't have to reimburse you.

£3k for an investigation isn't particularly steep, although slightly on the high side. Depends on the size of firm and their charges. If they're charging £200 p.h. which is the going rate for a partner/manager in a town centre practice, then it's only 15 hours of work, which isn't unreasonable for a long drawn out enquiry.

Trouble is that once a tax inspector gets his teeth into you, they don't let go and will indeed go deeper and deeper. It's not uncommon for them to ignore/forget what they've already been told and ask again for the same thing.

I don't think it's wise to change accountant now as you'll have to pay the time spent by the current one and then pay the new one for their time to go through it all again to get themselves up to speed. Best thing to do is to tell the accountant to start getting tough with the inspector, even to the point of making a formal complaint if all relevant information has been provided - usually what we do is write a letter outlining everything so far, making it clear nothing untoward has been found, and asking for closure - it's a tipping point to make the tax inspector "put up or shut up" - it sounds like the time is right to do it.

zipp

Pennywise wrote: »

I don't think it's wise to change accountant now as you'll have to pay the time spent by the current one and then pay the new one for their time to go through it all again to get themselves up to speed.

But how about if I deal with the investigation from hereon myself and do not employ an accountant? I am not prepared to pay 3k for an accountant to simply provide documents and answers to questions that I could be providing myself.

Zipp

Pennywise

zipp wrote: »

But how about if I deal with the investigation from hereon myself and do not employ an accountant? I am not prepared to pay 3k for an accountant to simply provide documents and answers to questions that I could be providing myself. Zipp

But how much of that £3k relates to time already spent which will still be payable. How much relates to future time which you could save? Sounds like most of the donkey work's been done anyway, so you may still end up paying most of the bill.

I still think you should speak to your accountant, tell him your concerns and try to preserve the relationship.

You may feel that you can deal with the simple matter of providing documents and information, but sooner or later the enquiry will move on and then you could come up against technical arguments or differences of opinion of what's allowable & what isn't etc., and you'll be wishing you'd kept your accountant if it all turns nasty.

It's also always a good idea to keep a "middleman" between you and the tax inspector as a safety valve to stop you falling into traps - tax inspectors are trained to ask "guiding questions" - a form of interrogation technique and it's too easy to say too much or give the wrong answer to a question and land yourself in it even if you're innocent. I've know of many cases when a person has regarded themselves as completely innocent but dropped themselves in it by saying or doing something that seemed innocent at the time, but which the tax inspector has picked up and taken out of context - very difficult to back track afterwards even if you've done nothing wrong - hard to prove a negative!! Best avoid the situation in the first place.

chrismac1

I agree with Pennywise. And for other self-employed folks reading this post, now is a great time to consider getting tax investigation insurance a.k.a fee protection insurance.

sunshinetours

This is also why we would generally only do full enquiry investigation work for those clients who haven't taken the insurance, once we have funds on account, and then bill on account during the investigation. No smallish client wants to get an "unexpected" £3k bill - its basic practice management