Negotiation in a tax investigation – the importance of sticking to your guns

Just updating ‘What HMRC Don’t Want You To Know” in the Features section and thought number 5 would make a good post….

Stephen Camm former Inland Revenue investigator and now leader of tax investigations at Price Waterhouse Coopers says, “In investigative cases there has always been a strong element of negotiation. Tax investigations are like sport, you need to know the rules: if you play Lacrosse without knowing the basics you are going to get hurt.”

On AccountingWeb accountant Louise gives an interesting story to illustrate this, “I have a friend who recently told me about an investigation she had a few years ago… An inspector had claimed that deductions for motoring were too high, and that a proportion of the expenses for their van should have been disallowed as private.

“My friend and her husband were running a cleaning business, and had a van for work, and a car for private use, so they didn’t use the van for private purposes as it was always full of cleaning materials, buckets, ladders etc. Despite having always employed a qualified accountant, he advised them to just agree to the inspectors demands… as it would be easier all round, and she was unwell at the time so didn’t need the added hassle of taking on her accountant as well as the tax man.

“Unfortunately, by the time the inspector had scaled back 6 years, added penalties, interest and the like, they had to re-mortgage their home to pay the final demand. All because they received poor advice – after all, if the van really was 100% business use, which she is adamant that it was, they should have stuck to their guns.”*

*This anecdote comes from Accounting Web and can be read in it’s original context here.

If you thought this was good, you should read this.