Tax Case Studies from Mr Tax
Don't just defend
The instruction I received was to help with an investigation case and as usual it came to me after the accountant had worked the case for some 22 months. The instruction was obtained from the taxpayer following a plea for help from the accountant.
The trap the accountant had fallen into was to let HMR&C dictate proceedings and to react. He replied to their correspondence rather than take the initiative. As the Inspector was only reviewing one year the accountant had given no thought to the overall strategy and had completely overlooked to find out when the defalcations had started and ended. To get a settlement the Inspector would have to complete his review of the one year and then he would have suggested using extrapolation both to adjust the earlier and subsequent years.
My approach was to find out what information was required, review it and then pass the required information on to the Inspector. I had established why the client started to understate profits and confirmed that he had stopped being so stupid. I then did the necessary work to prove that the funds available were sufficient to meet his living expenses. When I made a full submission to HMR&C the case was settled. What did I bring to the case? Very little or no tax saving. I got it settled and quickly which would have saved the client money in the overall settlement, i.e. both interest and penalty. Also I am sure that the professional fees were less than they would have been.
I have no idea how much stress I saved!!
Often I would take a snack lunch in a café near to work and one day the owner explained that following a VAT inspection HMR&C made assessments that would have bankrupted him. We had a meeting and not only did I believe him but I had visited the café over several years and knew if we could get the necessary evidence we could save the business. I agreed to work for no fee and rely on obtaining costs from HMR&C when we won.
A couple of meetings with the client, one with the VAT officer and a local review later we ended up at the VAT Tribunal. We won. Not only was the client the son of a high ranking clergyman but he was a hoarder. He produced menus and a photograph. The photoraph was of the cake he had made for his son’s 18th birthday party. It was taken in the café. Tthe date and the backdrop was sufficient to build a case around. We won the appeal.
Costs were awarded and I was paid. HMR&C were bad losers and refused to pay my usual hourly rate saying that I was a sole practitioner. Yes, but good enough to beat them!!
A client had a house with land and a short distance away from the main building, separated by a road leading to an industrial building behind the house, was a barn type building. The client had converted the barn into an annexe to the house used as a playroom for his children to include a games room in which table tennis was played. The entire plot to include the site of the house and playroom was less than one half hectare. On sale a claim was made for the gain to be exempt. HMR&C refused and I represented the client at the General Commissioners. We won and the client paid no tax.
I enjoyed the encounter with the tax inspector as a few years earlier he had investigated my affairs!!!