Now known as interventions, enquiries are part and parcel of the system which HMRC use to check the accuracy of self assessments returns that are submitted on the basis of "accept straight away and check later".
For some accountants it is an aspect which they do not have much experience or expertise in. In some cases the accountant may have only handled a few enquiries throughout their career or even none at all.
PBT Tax Solutions can call upon many years of experience as an ex Tax-Inspector to assist and guide clients through any enquiry. It is of paramount importance to understand the up-to-date techniques used by HMRC in today's interventions to ensure that the client is fully aware of what is taking place and to act in the client's best interests. Most importantly, to also ensure a speedy conclusion to the enquiry is always pursued .
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Tax Enquiries or Interventions specifically for the Taxi industry
Get yourself prepared to satisfy HMRC
HMRC enquiries….could it be me?
After 34 years of HMRC experience in all aspects of compliance, the latter twenty years being involved in tax investigations or as now commonly known Small & Medium Business interventions Paul Taylor of PBT Tax Solutions brings all of this expertise to partner Taximanager to bring what is believed to be an excellent solution to help the taxi driver simply and effectively deal with their record keeping. More importantly the aim is help protect the driver with recorded additional information to help support their self assessment return in the light of an HMRC intervention.
So why do HMRC open enquiries?
Self assessment is exactly what it says, one self assesses but HMRC reserve the right using legislation to check the accuracy of the return. There are many reasons for a return being selected, however they are never divulged by HMRC. Typical reasons are the random mandatory enquiry; this is to show that the system is fair, so that every return is open to being checked. Quite often third party information is obtained by HMRC from various sources, they can use legislation to demand the provision of payments made to individuals such as landlords who receive housing benefit from Local Authorities. There is always the aggrieved individual/informer who acts as a provider of specific information which springs to mind the saying ‘hell hath no fury like a woman scorned’. Under the Proceeds of Crime Act banks and financial institutions are compelled by law to make a report of suspected money laundering. There are also projects run by HMRC targeting certain industries/trades and ‘profiling’ of the returns. Ever wondered what all those box numbers detailed on the return help to do?, yes profile and interrogate the return(s) which can provide reports for specialist Risk Units within HMRC. These in turn produce profiles using all sorts of criteria HMRC choose to add into the building of requested profiles.
So could it be me is the question I hear you ask?
Yes it could, if you are a self assessment return case then you could be selected for review.
What happens in the case of an intervention?
Quite simply HMRC will want to check all of your records and bank statements. They will look at your financial circumstances and will be privy to what financial activities are going on in your household, and in conjunction with this, will look critically at what profit your return is showing. They will ask for all underlying and supporting records, receipts, bank and credit card statements used or having any connection with the business. HMRC will conduct an in depth review of your annual personal and private expenditure to basically see if there is sufficient money available to cover your living costs, monies saved, or any assets purchased. HMRC will use the likes of credit search companies such as Experian to obtain beforehand an idea of what outgoings are shown within the household.
What can I expect to happen if HMRC look at my accounts?
Almost certainly they will have built up a mass of information on you as this is the new style of enquiry. HMRC are for more professional than in the old days, when accountants would almost prepare off the shelf accounts based on retained fuel receipts on a £1:£7 fuel to takings ratio, with the expectation HMRC might argue a little over fuel consumption. It’s just like current day police techniques, the ‘old Sweeny’ style of yesterday, nowadays would not catch modern day criminals, quite simply enquiry techniques have moved on.
Whether HMRC have this information already or not (Borough licensing offices are often served with notices to provide certain information held about the drivers) they will undoubtedly be looking at the use of the vehicle. They will be able to calculate from various information seen in the records or that they may call for, as to how much mileage the taxi has travelled at various times of the year. This is measured to recorded takings and HMRC will interpret this information to ‘break the records’. Once broken then it becomes more difficult for the driver to support their recorded entries, as this will throw up assumptions that what has been found wrong in a certain period, had presumably occurred in an earlier period, then in previous years. HMRC can now go back under current legislation up to four years or where dishonesty is proven 20 years.
So what can I do to help prevent problems of this nature in the future?
It is imperative that the use of the car is critically looked at. It has generally been overlooked, accountants have sometimes never brought this to their clients attention, or the old school accountant still believes that to state nil or minimal use of the taxi is doing their client a favour. This is to avoid ‘add backs’ to tax computations for personal use. This way of thinking is foolhardy or ill advised at worst.
Each driver will operate in their own way and each day can throw up different variables. Examples of this are that some drivers travel a considerable distance before they ‘sign in’ or ply for hire, or make trips back home. Some use the car for all sorts of private uses such as hobbies, holidays, and seeing relatives all of which is simply mileage that is not generating income for the business. Yes it does constitute private use and a proportion of the running expenses are then added back to profit, as mentioned before, it is still not takings generated mileage. What is then left after taking all of this into account is the’ business’ use of the vehicle. So this should be further sub analysed to record contract work done at special rates, operator deals that may well be permanent or seasonal, and finally normal rate income. All these variables are very important and from my vast experience of enquiry work, is virtually non existent within driver’s records.
In order to help support prove that a driver’s records and subsequent self assessment return entries are correct, it is strongly recommended that the recording of mileage information is maintained.
Enquiries or interventions once launched by HMRC can take a considerable length of time to resolve, particularly when record keeping is somewhat suspect. Enquiries can cause stress to both the driver and their family. The simplest way to avoid as much of this as possible is to be prepared in the first place.