Tax return amendment investigation

davidnhouse

In December 2010 I was advised of a "12a Revenue enquiry" into the partnership owned by myself and my wife. A tax investigation in other words. They proposed to examine the return for 2008/09. However, for reasons which are not relevant, they messed up the paperwork and had to withdraw the enquiry. This took almost a year to be investigated, agreed as invalid and be withdrawn.

Our 2009/10 return was duly filed on time and the tax paid. However an amendment was made in April 2011 to this return, well within the 12 month period that is allowed for such corrections. Some additional tax was due and has been paid.

The Revenue, who have agreed to part fund the work done by my accountant for the aborted enquiry, have now opened up a new enquiry into the amendment to the 2009/10 return. They are also demanding information for the year 2008/09 (the year of the aborted enquiry, which is now time barred for enquiry) and previous years. Their justification for doing so is to verify that the "underdeclaration" was not repeated in previous years. They are asking for bank statements and other records.

I thought that it was perfectly acceptable to amend a return and as such, they had not discovered an "underdeclaration". That being so they cannot be justified in scrutinising previous years. There is no "underdeclaration" to be discovered in 2009/10, now the figures have been voluntarily amended.

As the business has been sold, I have retired, have cancer and am on the other side of the world until April, it is all a little bit of a pain!

I will be pleased to learn the opinion of anyone who has a view on whether the Revenue are justified in taking this action and if not what I should do. At the moment I am struggling through a 6 page letter full of the most mind blowingly complex questions.

pjclar02

Hello there

This is a complex area, and one where you are unlikely to get a full and detailed response on a forum, where the other forum members are not aware of the full circumstances.

However, where an Inspector makes a discovery of under-declared income, say, in a given tax year then case law dictates that proving this omission is sufficient for the Inspector to conclude that earlier years are also unreliable and re-open those.

It sounds to me as though it was always HMRC's intention to enquire into the 2009/10 tax return (regardless of the amendment) as a way to get back to the 2008/09 return that they were originally blocked from enquiring into. On that basis, before you allow them to go back to the earlier years you need to satisfy yourself that the discovery in 2009/10 is justifiable (and they can only re-open 08/09 to look into the same issue).

I would be looking for the Inspector to explain why he feels the omission in 2009/10 could not be an isolated incident. But if you are still in touch with your previous accountant, I suggest you make contact again and ask them to deal with it for you.

Good luck with it all.

chrismac1

This is very much a hot topic right now. The reason is that many accountants - not me because I have trained all my clients bar a handful to file early - will be tempted to file tax returns in the next 2 weeks knowing that information is not complete. Of course this will potentially result in re-submission in Feb or March when the information comes in. I confidently predict a big increase in this for 2010-11 returns because in previous tax years the £100 fine for a late return went down to zero if no tax was due, this is not the case any more.

The question is whether filing such a return amounts to submitting a tax return without having taken reasonable care - or whether it amounts to careless or even negligent error. The penalty regime is much lighter, zero where a mistake was made despite having taken reasonable care. Without knowing the details I think it's impossible for anyone to comment. It's something to discuss with your accountant and come up with an agreed strategy so you're both singing off the same song sheet.

What I would say is this. I have three clients where I could file returns now, but am holding back awaiting information from them. All three know in writing that if I don't get the information by 21st I'll be filing then. All three involve corporate card expenses which could be business or personal - in one case it is £7k of this so not small beer for a shop with £250k in sales. In all three cases that stuff is currently coded to drawings, so the £7k guy knows he'll be forking out £2,100 extra - 30% of the £7k as the payment on account will be higher too - if he cannot support the card spends as being business.

So at least this way round any re-submissions I do will result in lower tax bills, and the differences between original and final will be fully supported by business invoices.

pjclar02

Hi Chrismac1 - are you answering a different thread?