tax investigation Fees

difficult_blond

After having gone through a long and expensive " enquiry" which resulted in nothing found and case closed. I have inccured a high cost from my accountant for fronting this enquiry.

I have been informed that this fee is not tax deductable? I am confused as to why I can not claim this as an expense seeing as I did not complete my return inccorectly, Surely there must be a way for this to be offset as a professional fee?

Can anyone advise me on this please?

antrobus

Yes.

Where, however, the enquiry results in no addition to profits ... the additional accountancy expenses will be allowable.

See :-
http://www.hmrc.gov.uk/manuals/emmanual/EM3981.htm

PlutoinCapricorn

Who said this expense was not claimable?

antrobus

PlutoinCapricorn wrote: »

Who said this expense was not claimable?

If it was some bloke down the pub, then learn not to take any notice of what blokes in pubs tell you.

If it was the accountants, then consider getting some new accountants.

difficult_blond

Many Thanks Antrobus,
The link and you information was exactly what I needed to know. I had no additional profits nor discrepencies from the enquiry, all was found to be in order. I did not think it was logical for this not to be an expense as it was bought on through no fault of my own, I was just one of the unlucky ones pulled out of a hat. It Was not a man in the pub who gave me this info, it was my accountant, I will speak to him again on Monday.
Thanks again for taking the time to reply to me.

PlutoinCapricorn

Do you know what it was that brought the troops down on you? Could the accountant have been negligent?

I have heard that filing very early or at the last minute can be red flags to HMRC, as can huge rises/drops in income/expenses. There are boxes on the tax return where you can explain this sort of thing, which helps to avoid attracting attention.

Even after offsetting against income, you will still be out of pocket, and for nothing.

chrismac1

It's unlikely the enquiry was random, it's also unlikely the accountant was negligent. The last post displays a lack of knowledge as to how HMRC operates in 2013 on 2 fronts.

Firstly, enquiries are often very targeted but through sheer incompetence the targeting is often a joke. The worst example of this - but not an isolated one - is where HMRC opened an enquiry into a dance school client under the umbrella of false self-employment. This is where a business pretends its staff are self-employed. When we told HMRC that all its staff were on the books and that we'd paid across over £15k in PAYE and NI they called off the planned full day visit and 200 mile round trip for 2 HMRC staff.

So although enquiries are not random, they are often just rubbishly targeted. In general I would say that the more concerned I am that a given client may not be declaring everything properly to me, the less likely that client is to see HMRC interest.

I frequently use the white space on tax returns to add information, as an insurance policy for use in an enquiry. In other words, as a defence against HMRC saying "You never told us this" I put information in the white space.

This stuff never gets read by anyone in my opinion, not even by HMRC staff preparing for an enquiry visit. Anything you put in the whote boxes pretty much always comes as news to those staff, who clearly don't normally bother to read the tax returns submitted before coming out on visits.

So the notiion that anything you put in a white box reduces the chances of an enquiry is just ridiculous.

Pennywise

As long as the accountancy fees relate to work re your business accounts or business tax returns, and as you say, no extra tax or penalties are payable, then, yes, it's an allowable expense against your business profits.

As for reasoning behind enquiries, I don't really buy-in to the "random" theory for enquiries. Every enquiry I've been involved with over the past 13 years has had a clear trigger. None have been purely random, or fishing trips. OK, the HMRC computer may pick out "random" tax returns for an inspector to look at in the comfort of their office, but they are only taken further if the inspector sees something of interest. I suspect most taxpayers/businesses have no idea that their returns have been picked for a "desk review" within HMRC - with the review being concluded within minutes - another box to tick for the inspector!

Unlike others in the profession, I actually believe that making full disclosure in the "white space", other information boxes, helps avoid an enquiry and isn't just to counter a discovery assessment later. For example, I have a client where they spend 25% of their turnover on advertising, absolutely zero on entertaining, but on the tax return the advertising goes in the "advertising and entertaining" box, and being such a big number, tax inspector would probably expect some add-back for entertaining - so I put a note in to say that it is all entertaining and give a brief analysis between Google Adwords, local radio, etc. Never hear anything from them again. (Compared to a very similar scenario in a client I inherited from another accountant who was subject to a full enquiry which included questions about high amounts of advertising and entertaining).

No-one really knows how HMRC selects enquiry targets, we can only pass on our experiences. My experience is that I make full use of the "white space" - there's something in there for nearly all client tax returns - and I get very few tax enquiries - maybe 1 every year or two, so it seems to work for me!

PlutoinCapricorn

Using the boxes to explain anything that you think might attract attention at least covers you: if HMRC do get in touch you can immediately ask if they have actually looked at your return and read the comments boxes.