Tax Tips and More | Spring 2019

Tax Tips and More Spring 2019

Spring Statement Revealed

Probate Fees Hike

How to Sell Your Business

The Spring Statement was delivered on Wednesday 13 March 2019. Brexit overshadowed the statement and there was no major tax or spending changes. However, the Chancellor did make three key announcements.

The Government, via the Ministry of Justice (MoJ), has announced plans to increase probate fees.

From April 2019, estates in England and Wales over £50,000 will pay more – up to £6,000 more.

If you are considering selling your business and want to obtain the best possible value, focusing on these areas will improve your business, whether you decide to sell or not.

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Contents

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2

Welcome and Partners

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Special Feature Spring Statement Revealed

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Business Insights: Remaining at the Forefront of Technology

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Limited Company or Sole Trader?

8

Probate Fees Hike

9

Financial Trends for SMEs

10

Xero Add-On Workflow Max

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How to Sell Your Business

12

Employee Spotlight

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Business Rates Retail Discount Scheme

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“Bad Behaviour...�

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Welcome to our SPRING Newsletter Brexit continues to cause much uncertainty for UK businesses, with many SMEs still holding off investing until the impact of Brexit is clear. As much as possible, the government will aim to provide as much continuity and certainty for businesses in the event of a no deal, but how they will do this, we will have to wait and see.

Aside from Brexit, we hope that you have had a great start to the year and are ready for the new tax year.

At the Spring Statement, as expected, there were no major revelations. We have summarised the main points on page 4, but perhaps the key takeaway was that the Government has confirmed Making Tax Digital will not be extended for new taxes or businesses in 2020, as previously announced. This gives businesses more leeway and time to get used to the changes in VAT reporting.

This quarter we are also pleased to bring you our Business Insights article, which looks at the secret behind Brownian Motion’s success. See page 6.

Raffingers Partners

Gary Inglis Managing Partner gary.inglis@raffingers.co.uk

Andrew Coney Partner andrew.coney@raffingers.co.uk

Lee Manning Partner lee.manning@raffingers.co.uk

Adam Moody Partner adam.moody@raffingers.co.uk

We also bring you the latest news and advice to ensure your business is trading in the most tax efficient way (page 8), your business is running efficiently and maximising its value (page 12) and your money is protected (page 9).

Suda Ratnam Partner suda.ratnam@raffingers.co.uk

For advice on any of the topics discussed, please contact one of us.

Barry Soraff Partner barry.soraff@raffingers.co.uk

To contribute to our next newsletter, contact: ingrid.beya@raffingers.co.uk.

The Partners at Raffingers

Paul Dell Partner paul.dell@raffingers.co.uk

Roy Butcher Partner roy.butcher@raffingers.co.uk

Neill Staff Partner neill.staff@raffingers.co.uk

Your Business Our Passion

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SPECIAL FEATURE

Spring Statement Revealed Philip Hammond delivered the Spring Statement on Wednesday 13 March 2019.

As expected, Brexit overshadowed the statement and there was no major tax or spending changes.

However, there were three key announcements that Hammond pledged to undertake immediately: • In a response to concerns raised by head teachers, the government will fund free sanitary products in secondary schools and colleges in England from the next school year • The chancellor pledged to clamp down on late payments. Company audit committees will now be required to report on their payment performance in their annual report and accounts • In response to knife crime, £100million will be available to police forces in the worst affected areas in England and Wales Hammond also made it clear that if a Brexit deal was agreed, a three-year spending review would be launched before the Summer, which will conclude alongside the Budget 2019. He also pledged a £26.6billion ‘deal dividend’ to boost the economy.

Economy Hammond stated that the economy remains resilient and has continued to grow, with wages increasing and unemployment at historic lows.

• The Office for Budget Responsibility has forecast further economic growth every year, for the next five years • Once Brexit uncertainty has been removed, business investment is forecast to start growing again from next year Science and Technology Hammond announced that he will be allocating over £200million to support scientists, innovators and industry:

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• £79million funding for a new super computer in Edinburgh • £45million investment in Bioinformatics to drive genetic research • £81million into Photonics to help researchers understand the composition of new materials For Business | Apprentices The government continues its support of apprentices. At the Budget 2018, it was announced that the co-investment rate will be halved from 10% to 5% and the amount employers can transfer to their supply chains would increase to 25%.

These changes will now take effect from April 2019.

For Business | Tax Avoidance, Evasion and Noncompliance To continue to make the tax system fairer the government will launch several consultations: • Preventing abuse of the R&D tax relief for SMEs. This consultation will focus on how the measure will be applied to minimise any impact on genuine businesses • Insurance Premium Tax operational review. A call for evidence on where improvements can be made to ensure that Insurance Premium Tax operates fairly and efficiently • The Furman review found that tech giants are becoming increasingly dominant. The government will respond later in the year to how it can update competition rules to open the market and increase choice for consumers • VAT Administration in the Isle of Man. Recommendations to ensure the right VAT continues to be paid and collected in the Isle of Man • Structures and Buildings Allowance. Draft legislation, published for comment, on introducing a new, permanent allowance for investments in non-residential structures and

buildings to create a more competitive tax regime for businesses – as announced at Budget 2018 • Social Investment Tax Relief (SITR). A call for evidence on the use of the SITR scheme, including why it has been used less than anticipated and what impact it has had For Business | Making Tax Digital From April 2019, Making Tax Digital will come into force, requiring mandatory digital record keeping for VAT for businesses over the VAT threshold (£85,000). The government has confirmed that penalties will be light for non-compliance in the first year.

The government will be focusing on supporting businesses in the transition to MTD and will NOT be mandating MTD for any new taxes or businesses in 2020.

For Business | Promoting Clean Business Growth • Call for evidence on a business energy efficiency scheme to help smaller businesses reduce their energy bills and carbon emissions • By 2025, the government will introduce a Future Homes standard to future proof new build homes with low carbon heating

Facility will be launched to provide flexible shortterm support for UK exporters. UK Export Finance will publish further details • From June 2019, landing cards will be abolished and citizens of the US, Canada, New Zealand, Australia, Japan, Singapore and South Korea will be permitted to use e-gates at UK airports For Individuals | National Living Wage Later this year the government will set a new remit for the National Living Wage beyond 2020.

Housing To restore the dream of home ownership, Hammond announced the following: • £717million from the £5.5billion Housing Infrastructure Fund to unlock up to 37,000 homes • The government will guarantee up to £3billion of borrowing by housing associations in England to support delivery of around 30,000 affordable homes • Transforming cities fund. £60million of investment will be made in ten cities across England to support bus station upgrades, new cycle lanes and road improvements.

• Borderlands growth deal. Up to £260million will be invested for the Carlisle Southern Link Road • Local Full Fibre Networks. £53million of funding will be available to nine local areas • Planning for High Streets. A consultation will be launched to see how local areas can better support their local high streets

For Business | UK Open for Business As the UK leaves the EU, Hammond made it clear that it is vital for the UK to be open for business. He announced: • Access to Finance: the government will provide additional funding to the British Business Bank for venture and growth capital as we leave the EU • Support for exporters. A new General Export

Barry Soraff 020 3146 1603 barry.soraff@raffingers.co.uk

Your Business Our Passion

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BUSINESS INSIGHTS

Remaining at the Forefront of Technology Sometimes in business you need a bit of luck.

But you also need passion, determination and the right skills to capitalise on this luck and turn it into a growing and sustainable business. And that is exactly what Brownian Motion has done – a business that is at the forefront of technology.

We recently caught up with Jeff Brown, Head Honcho at Brownian Motion to reveal the secret behind his success and what advice he’d give to future entrepreneurs.

When he was younger, Jeff always wanted to make movies and spent his twenties making music videos, short films and corporate videos. Things changed in 2007 when he took a punt by backing a new camera, the Red One. This camera was going to be Red Digital Cinema’s first production camera and would eventually end up taking two years to develop. Regardless, Jeff put a deposit down and two years later found that he was one of the first people in the UK to own a Red One. Initially, Jeff’s only intention was to use the camera to make independent movies. However, he soon found himself inundated with requests to rent the camera. It was then that the origins of Brownian Motion as a rental company were born.

It may have been luck that Jeff found himself in the position to capitalise on the change from film to digital in the movie industry, but it was from his passion for film production, combined with his business acumen that he has been able to create a fully-fledged rental company that is now at the forefront of technology.

From the very beginning, Brownian Motion has embraced new technology and new ways of doing things. Jeff has made it a priority to stay ahead of the curve, ensuring

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“You need a team around you that you can trust and delegate to, especially if you wish to grow.” the company always had the latest technology available.

And that is the key to Brownian Motion’s success – the company is always evolving and has innovation at its core. Jeff’s team focus on design and problem solving, not only bringing the latest equipment to its customers, but also designing and innovating accessories, building custom rigs and offering tailored services. This has meant that despite increasing competition, Brownian Motion has successfully managed to differentiate and

build its reputation as being at the cutting edge of digital acquisition.

Brownian Motion is now proud to call amongst its customers major commercial production films, which Jeff states is his biggest achievement, “from starting out on my own to now having a dedicated, experienced team that work with huge films is a massive achievement”.

“Balance in business is vital. To be successful you not only have to manage your business, but also yourself personally.”

So, what does the future now hold for Brownian Motion?

Jeff wishes to continue to build on his success, consolidating his reputation and becoming the number one place for innovative camera technology.

To achieve his ambition, Jeff is aware that he needs a good life work balance, “Balance in business is vital. To be successful you not only have to manage your business, but also yourself personally. Business is important, but you should also acknowledge other areas of your life and know when to let go.”

Part of that equation is to make sure you have a good team to manage the stresses and strains, “Being a business owner means you must wear many different hats – HR, marketing, finance etc in addition to your day-to-day role. You therefore need a team around you that you can trust and delegate to, especially if you wish to grow.”

Jeff’s final piece of advice to business owners is simply to “love what you do”. “Whether you’re a start-up or otherwise, you need to be motivated every day and that can only come from being in a business that you are passionate about.”

Jeff has managed to build a business that combines his passion for movie production with being at the forefront of technology. To find out more about Brownian Motion, visit their website www.brownianmotion.co.uk or follow them on Instagram @brownianmotionrental “Remaining at the Forefront of Technology” is the latest article in our Business Insights series. This series was developed as part of our commitment to help businesses, at any stage in their journey, to achieve their ambitions. To read more of the articles in the series, visit our website: www.raffingers.co.uk.

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Limited Company or Sole Trader?

Should you operate as a limited company or sole trader? When choosing which is the most efficient way to trade, there are many factors you need to consider.

Tax Considerations Forming a limited company was the most obvious answer a few years ago. Shareholders were able to draw dividends up to their higher rate band of £42k, without incurring any personal tax. Now, there is a taxfree amount of £2k that can be drawn. After which directors are liable for 7.5% tax on the dividend, which increases to 32.5% if you exceed the higher rate band.

This change in tax now needs to be taken into account when considering setting up a limited company.

I have calculated that you should stay as a sole trader if your expected taxable profit is £20,000 or below. In this situation you are better off by approximately £300 p.a. from a tax perspective. This is without considering the additional admin costs that a limited company brings.

Non-Tax Considerations for forming a limited company Pros • You have limited liability protection so if, for any reason, you need to close the company, then you are personally protected from any creditors • Reputation. It shows your customers that you are a serious business • You can bring in shareholders to invest in the company • Tax planning opportunities are available in certain circumstances, such as the use of dividends, fragmentation of shares and company pension schemes for directors Cons

• You need to be aware of your Director Responsibilities • Your financial accounts will be on public record at Companies House • You need to file annual accounts and a confirmation statement, which is costlier than preparing sole trader accounts

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Stay as a sole trader if your expected taxable profit is £20,000 or below.

• You can run company cars as a sole trader without incurring any tax on the benefit, whereas the tax can be excessive if a company car is run through a limited company • A PAYE scheme is usually required. It is not possible to take money out of the company on an ad-hoc basis as can happen in a partnership • It is not easy to close a company as it has a separate legal entity • There are likely to be taxable “benefits in kind” giving rise to tax liabilities on the directors e.g. company cars, fuel etc. This does not apply to partners in a partnership. A director/ shareholder can loan money to the company but cannot borrow from it. Loans to directors are prohibited (i.e. an overdrawn loan (capital) account is illegal) and can also have serious taxation consequences.

As you can appreciate there are many factors to take into account when considering the business structure to take when you are running your own business.

Personally, if the business starts off on a small scale I would trade as a sole trader and once the business starts to grow then convert to a limited company. However, for the sake of a 10-minute conversation I would always consult with your accountant and discuss with them your long-term plans.

If you are unsure whether to operate as a limited company or sole trader, contact Lee via the details below.

Lee Manning 020 3146 1604 lee.manning@raffingers.co.uk

Probate Fees Hike The Government, via the Ministry of Justice (MoJ), has announced plans to increases probate fees from April 2019.

Currently, probate fees in England and Wales – the fees paid by the Executors when applying for the Grant of Probate during the administration of someone’s estate – are charged as a flat fee of £215 or £155, if a licensed probate practitioner applies for the Grant.

From April 2019, estates in England and Wales under £50,000 will pay nothing but larger estates will pay more – up to £6,000 where the estate is valued at more than £2million.

The MoJ argues that this increase is necessary to fund the work of the courts. It issued proposals early last year which wanted much higher increases for larger estates, but these were dropped amidst widescale protests.

The Probate fees were due to increase from 1 April 2019, but this has been delayed and the fees are now expected to increase towards the end of April 2019. The Probate fees that will apply in England and Wales from this date are: Estate Value

Probate Fee

Up to £50,000

Nil

£50,000-£300,000

£250

£300,000-£500,000

£750

£500,000-£1million

£2,500

£1million-£1.6million

£4,000

£1.6million-£2million

£5,000

Over £2million

£6,000

So, an estate worth more than £2million sees a 38-fold increase in fees from April 2019! There is also no IHT relief on the fees so the actual cost of meeting these fees from the estate is a lot more.

There is currently a difference of opinion between the Parliamentary Committees and the MoJ as to whether the above increases need a change in legislation – with the MoJ believing they can introduce the increases via statutory instruments – if this is the case, it means there will be no debate by MPs.

There are also practical issues around paying the fees.

Currently as the fee is a modest amount, many licensed probate practitioners pay the fee on behalf of their clients and claim it back when funds are available after the Grant of Probate has been obtained – with such a significant increase in fees planned, it is unlikely that this practice will continue. This can leave families in the Catch 22 position of having to find money to pay the fees before they can obtain the Grant of Probate that gives access to the assets of the Estate.

The Probate fee increase will affect around 250,000 families.

So, what practical steps can be taken by families to ensure these fees can be paid?

• Review life policies to ensure that they provide adequate funds for dependants and are written in trust. This leaves the funds outside of the estate, saving both inheritance tax and probate fees • Update pension plans to make sure nomination forms are up to date and reflect current wishes.

Pension funds remain outside of the estate and can remain in a tax-exempt wrapper for successors • Ensure there are adequate cash reserves in a joint account. Joint accounts automatically pass by survivorship and do not need the Grant of Probate to access the funds. It makes sense to have a joint account that can meet the probate fees and provide funds for dependents whilst the probate process takes its course Raffingers Probate can help you manage your probate and estate needs efficiently, as well as help you to put plans in place to reduce your IHT liability. For further support contact Paul Dell.

Paul Dell 020 3146 1606 paul.dell@raffingers.co.uk

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Financial Trends for SMEs The life of a business is never straightforward and there will always be obstacles. One of the most common hurdles is ensuring the correct amount of finance is obtained to support a business’ growth plans.

Recent research has shown that nearly 30% of UK SMEs require funding simply to stay in operation, yet a large number still find accessing this finance a major challenge.

We’re four months in to 2019; therefore, I wanted to review the trends for this year, and how these can help SMEs address their funding challenges.

1. FinTech’s Role in Supporting SME Loan Options New financial technology (FinTech) platforms are becoming a popular option for small businesses in need of a boost to working capital, especially in comparison to larger lenders. Using smart technology, FinTechs are providing smaller businesses with access to innovative accounting software, financial management, insurance and business evaluation services.

2. Rise in Open Banking Saving time, hassle and risk for small businesses is what Open Banking is all about. Using integrated portals, it provides a safe and secure way for providers to access financial information quickly and efficiently. It can provide small businesses with increased transparency, smoother form-filling, fairer credit decisions and greater growth opportunities.

Those looking to access funding as efficiently as possible, should consider tapping into providers who use Open Banking technology to help benefit their business.

3. Disruptive Financing Options vs Banks Accessing finance via traditional banks versus more disruptive financing means will forever be an ongoing debate. Today, there remains an understood resistance

from banks to lend to UK small businesses, prompting concern on the wider impact on UK small business survival rates, with the total amount of bank overdrafts and loans outstanding to small businesses decreasing by nearly £6billion in the past five years. Make sure to research as many options as possible before deciding which option suits you best.

4. Alternative Finance Increasing in Demand The small business funding gap is most certainly an area that needs to be rectified; as limiting access to finance can not only effect small business growth but can negatively impact wider economic progress as a result too. There is a need for ease of application and smoother processing as the highest priority and many alternative finance options provide just this, and therefore are increasing in appeal.

5. Growing Need for Flexi-Finance It is always worth forecasting and planning out exactly how much finance is required and when. This is sometimes very difficult to estimate but having the option to automate quickly the amount of lending required can be beneficial.

Finding flexible finance options, can allow access to a consistent source of funds for as long as it might be needed. It is a positive way of receiving regular, agreed amounts on a continual basis, allowing you to plan and grow in a safer environment.

We hope familiarising yourself with some of these trends will help set you on a strong path for a successful 2019.

Roy Butcher 020 3146 1607 roy.butcher@raffingers.co.uk

“30% of UK SMEs require funding simply to stay in operation.”

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Your Business Our Passion

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How to Sell Your Business If your exit strategy is to sell your business, early planning is vital to ensure you obtain the maximum value.

It is often said that your business is only worth what someone will pay for it. Indeed, there are some parts of the business that have a clear value for buyers, but there are also intangible assets and areas that you can maximise to increase the value of your business. Here are the factors you need to consider: Your Buyer Typically, there are two types of buyers. Firstly, those looking to grow through acquisition as part of their own exit plans. These often have mid-long-term growth plans and want to see a return typically in three years.

Secondly, those looking at a ‘buy and build’ strategy with a view to grow their business and get listed. These companies want to see a return as soon as possible.

It is important you understand your buyer as this will determine your perceived value and what you should focus on to prepare your business for sale. Ultimately, you need to show that your business achieves continual growth or has the potential to achieve continual growth.

Waiting until your business plateaus will reduce the value.

Reduce Owner Dependence You need to show that the business can survive without you. Therefore, build a strong management team that can manage key business relationships, and can continue to grow the business under new ownership.

Skilled Employees

Demonstrate that your business achieves continual growth. reliant on a few customers for their revenue.

Reliable Forecasts When selling you will need to produce three years’ accounts and a forecast for the current and following year. You must be able to substantiate your forecasts and produce management accounts that show your forecasts are achievable.

Cash is King A good cash flow will make your business appear valuable. However, to achieve this do not suddenly cut costs to maximise profitability (such as internal recruitment, marketing, reducing expenditure). Any short-term changes will be spotted and may affect your credibility.

Specialise Businesses that specialise are sometimes more valuable because they provide ‘bolt-on’ opportunities for Buyers and offer an affordable entry route into a new/ key market. Therefore, make sure you demonstrate and make clear your business’ specialisms.

Have a Strong Brand

Skilled and motivated employees are a key asset. Buyers want to see employees that are committed to your business and can demonstrate consistent performance.

A recognisable brand and a good reputation will make you attractive to Buyers. Make sure your marketing demonstrates your culture. Also, trademark your logo to protect it.

Diverse Customer Base

Documented Processes

Businesses are deemed more attractive and of a reduced risk if they have a diverse customer base and are not

Having robust processes that are well documented demonstrate that you are running an efficient business,

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EMPLOYEE SPOTLIGHT

Visham Gunputh Audit and Accounts Team which will help during the due diligence.

Compliance Buyers will review your compliance procedures. Not being compliant can make your business unsaleable and appear as a risky investment.

Potential for Growth As well as showing the strengths of your business, you should also highlight potential areas for growth.

Businesses are more attractive when investors can see the potential. If you are near the peak - investors may believe there is no further room for growth.

Technologically Advanced Are your systems and processes cumbersome or inefficient? Consider using technology to streamline and make your internal processes more efficient. Outdated systems that Buyers need to invest in will make your business appear less attractive.

Company Structure Is your business structured in the most efficient way?

Review your corporate structure and remove unnecessary corporate governance expenditure, identify tax benefits, and reduce the amount of time senior management spend on unnecessary entities.

Conclusion Focusing on these areas will improve your business, whether you decide to sell or not.

If you are considering selling your business and want to ensure you obtain the best possible value, contact Andrew Coney.

Andrew Coney 020 3146 1602 andrew.coney@raffingers.co.uk

In this slot we introduce you to a valued member of our team, allowing you to put a face to a name.

This quarter we speak to a member of our Audit and Accounts Team, Visham Gunputh.

Name: Visham Gunputh Email: visham.gunputh@raffingers.co.uk Career: I have always been an ambitious individual, but all credit goes to my dad for persuading me to not go to university and instead start my ACCA qualification straight after my A-levels. Alongside my studies, I started my work experience at a one-man band accountancy firm in the late 90s, before moving to a larger practice. I qualified in 2002, got married in 2003 (at a very young age) and decided that I had to make a move. It was a tough decision to make at the time, but looking back, it was the best decision I ever made. I moved to Alexander Ash in 2003 (which later merged with Raffingers). During this time, I completed my ACA exams.

Both the ACCA and ACA gave me real business qualifications, but both required good old-fashioned hard work, which didn’t hurt!

Interests: I am sadly a huge Arsenal fan and play 5-a-side football religiously, albeit at a very slow pace. I also enjoy exotic holidays and visits to South Africa and Mauritius are regularly on the agenda.

Highlights: The most amazing evening of my life was on the 16 February 2011 when my daughter was born (and I had the opportunity to watch the Champions League game between Arsenal and Barcelona). The Gunners somehow managed to win as Messi decided to leave his football boots at the Camp Nou. Partners Report by Paul Dell: Visham has worked with me for the past 15 years. He is a great member of the team and just gets the job done. Visham has built strong relationships with clients over the years and it has been great to see him progress into the expert he is today.

Your Business Our Passion

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Business Rates Retail Discount Scheme Councils are currently issuing their 2019/20 Business Rates bills. Therefore, it is important you review whether you are eligible for the Retail Discount Scheme and check whether your council has applied the relief to your bill.

You may recall that, in the 2018 Budget, the government promised to provide a business rates ‘Retail Discount’ for retail properties with a rateable value of less than £51,000. Retail properties are classified as properties used primarily as shops, restaurants, cafés and drinking establishments. The value of the discount should be one third of your bill.

will need to claim the relief directly from your council.

We recommend you review your Business Rates bill to ensure the correct relief is applied.

We would also like to remind you that if you have considered appealing your ratings valuation from April 2017 and have not yet done so, now is the time to consider this. We can put you in touch with surveyors who specialise in this area, if needed.

For assistance regarding the Retail Discount Scheme, please get in touch.

Councils were expected to apply the relief from the start of the 2019/20 billing cycle. Unfortunately, we have noticed that not all councils have reflected the relief on their bills. If you believe you are entitled to this relief and it has not been included on your Business Rates bill, you

Paul Dell 020 3146 1606 paul.dell@raffingers.co.uk

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Masquerade Charity Ball Saturday 2 November 2019 Woolston Manor, Chigwell, IG7 6BX 6.30pm - 11.30pm Tickets: £60 per person Book your tickets by contacting ingrid.beya@raffingers.co.uk.

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Tax From the Trenches | Neill Staff

“Bad behaviour...”

We recently settled a long running status enquiry with HMRC. The client had a work force of several hundred operatives, most of which were either self-employed or provided their services through a service company. HMRC believed that the operatives were employees and that their income should be subject to PAYE. The case lasted several years, but in the end, we brokered a deal that everyone seemed happy with. However, as part of the enquiry process, the Inspector began enquiries into a small number of the operative’s tax affairs, including their Self Assessment returns, and in some cases the accounts and tax returns of their service companies.

Indeed, the accounts do contain some deductions that are potentially excessive. Unfortunately, the operatives had all used the same accountant to prepare their accounts and tax returns, mainly because he was cheap.

Most of the expenses in the accounts were estimated.

Some of the costs (such as travel, clothing and rent) would not be fully allowable.

I started picking up on these smaller enquiries towards the end of last year. However, before we go into detail, just a bit of background...HMRC can raise assessments for four years without needing to establish if a taxpayer has been careless or guilty of a deliberate behaviour.

To assess more than four years, but no more than six years, HMRC must establish that the taxpayer has been careless in his actions. To assess more than six years the taxpayer must have been deliberate in his actions.

There is also a behaviour described as deliberate and concealed, which is when the taxpayer deliberately did something to avoid or evade paying tax and then tried to cover his tracks. HMRC don’t get any extra years for this. The concealed behaviour does, however, result in extremely high penalties. An alternative word for this type of behaviour is Fraud.

My argument in these cases was quite straightforward.

The operatives in question have no knowledge of tax.

They provided manual labour services to clients and were fully reliant on their accountant to prepare accurate accounts and returns and simply signed what was sent to them in the post. My argument to HMRC was that the operatives had taken reasonable care in their tax affairs by appointing a tax professional, and that any errors in the accounts were not necessarily their fault. I didn’t expect HMRC to accept this suggestion readily, but it is a reasonable starting point for negotiations.

You can imagine my surprise when the Inspector told me that HMRC’s view was that the errors and overstated expenses were as a result of deliberate and concealed behaviour. The Inspector went on to list out the various discovery assessments she intended raising, in some cases going back to 2008. I spoke to the Inspector who explained that they had received a letter in each case explaining the nature of the expenses claimed and why these should be allowable for tax purposes. None of the guys had mentioned anything about this to me so I asked the Inspector to send copies of the letters.

I received the letters last week and everything started to make sense. When I spoke to the clients they confirmed what had happened. When they received their original enquiry letters, they tried speaking to their accountant who refused to help. Not knowing what to do next, they went to see one of the directors of the main company, who we’ll call Mr Idiot. Mr Idiot believed that he could deal with anything, including tax enquiries. He set about responding to the HMRC enquiry by drafting a series of eloquently written letters which contained wild and fanciful explanations about the expenses that had been claimed. The guys told me that they hadn’t got a clue what had been said in the letters, but they’d been told it was ok and all they had to do was sign.

So where are we now? To say that the letters have bitten the clients on the bum is a proverbial understatement.

HMRC are pointing to the signed letters as evidence that the clients deliberately claimed expenses that they should have known were not allowable, and then lied to conceal the truth. Mr Idiot is nowhere to be found, and we are left with the devil’s own job of convincing the Inspector of what happened in this case. In fairness to HMRC, the Inspector is listening and has agreed to a series of meetings with the clients, so we can demonstrate that they didn’t have the ability or capacity to send the letters.

The point to this story is that no one should deal with HMRC on an enquiry case unless they have sufficient knowledge and ability to do so. Help from wellintentioned friends is not always a good thing. When in doubt, see a tax professional.

By, Neill Staff 020 3146 1605 neill.staff@raffingers.co.uk

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