SEARCH, INDEX, UPDATES, CONTENTS, SERVICES, TAX COMPLIANCE, TAX INVESTIGATIONS
Expensive?
A basic rate taxpayer might agree to an adjustment of £4,000 as additional business takings thinking it would cost approximately £1,000 in tax. Cheaper than arguing? The final cost is more likely to be £15,000 when the Inspector suggests adjusting previous years as well, adding interest, penalties, national insurance, notifying Customs & Excise and adding VAT.
So your takings are fully recorded, but can you persuade the Inspector that you have correctly identified all private use of cars, telephones etc.?
We have considered the question of insurance to cover the cost of professional fees for assisting with a tax investigation. From the 1 December 2003 we are offering our clients the opportunity to effect insurance through IRPC TaxSure.
What else can you do?
The best way to defend yourself from any unwarranted attack is to keep accurate, detailed records, supported by prime documents and vouchers.
Examples of prime documents are consecutive daily till rolls, booking diaries, time sheets, rough stock schedules, mileage claims, customer enquiry forms, delivery notes, price lists, etc..........
The Inland Revenue publish their studies of varies trades, known as business economic notes. Inspectors compare individual businesses against these studies, and it is important that you retain records which can establish why your business differs from the norm - what were your selling prices two or three years ago?
Keep records of all transactions which do not have a tax implication.
Be prepared to prove the genuineness of a legacy you have received without having to refer to the executors who acted for the estate and who may themselves now be dead. Get and keep evidence of gifts and loans received.
Premium bonds, PEPs, TESSAs, ISA's, loans and some social security benefits do not have to be reported on your annual Tax Return, but all the transactions involving them can explain funds available to meet personal expenditure. Keep any correspondence which relates to them.
A full enquiry can be very stressful and time consuming. The Inspector will want to examine the records from which the Tax Return was completed. He may want a face to face interview with the taxpayer. An interview may be a quick way of resolving problems, but it is not always necessary, and the Inspector cannot insist on an interview.
Whether at interview or in writing, the Inspector will ask some probing questions. Would you have any problem answering these example questions -
"Your car insurance policy is only for social, domestic and pleasure purposes. You are claiming 50% of your car mileage is for business purposes. Are you telling me you are driving without insurance, or would you like to reconsider your claim?"
"Do you pay the retail price for goods you take from your own shop?"
"I have reviewed the itemised bills for your business, home and mobile telephones. You claim 60% of your calls are business. Which of these are business calls?"
An Inspector will be comparing the money available to you in any period under review with your expenses. This can take in the sale or purchase of any personal assets or changes in savings or loans. You might be surprised how much you spend. Try our expenditure questionnaire similar to that used by the Inspector.
See also - Self Assessment Enquiries, Good Record Keeping, Search Warrant, Fee Protection Insurance.
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 7 November 2003.