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HMRC Local Compliance

HMRC is properly entitled to look at business records. It is a simple fact however that it is virtually impossible for a taxpayer to maintain "perfect" records; the requirements are far too demanding. HMRC staff can, and do, take as long as they wish picking over cases looking for points to challenge and almost inevitably find one. Regardless how small, this then triggers a fully fledged challenge.

The basis on which HMRC is allowed to raise demands is unbelievable. They can simply consider the records of, say, a takeaway Chinese restaurant, note the number of meal cartons purchased, multiply that by their estimate of the average price of a meal, and come up with an increased sales figure which is almost inevitably over the top. Claims of the understatement of sales of £1/2m by small restaurants are as common as they are unrealistic! It is then left to the taxpayer to disprove their calculated guess.

The outcome thus imposed on the taxpayer often completely ignores other factors as the level of personal drawings, lifestyle, whether wealth has been acquired etc! It is not objective and this type of settlement, almost inevitably proposed by HMRC, is not acceptable!

Without getting into the minutia of contract law the conduct of an investigation is essentially a contractual negotiation about the terms of a settlement to be agreed between HMRC and the taxpayer. The determinant in any dispute about a contract is the balance of probabilities, what is the most likely accurate situation. So in the case of our Chinese restaurant the outcome should reflect a consideration of all the factors.

My cases are worked fully to take account of all circumstances. I do not address only HMRC's perspectives; rather I am anxious to establish the overall situation. Whilst I will clearly have regard to HMRC's claims about the cartons (as in our example) I investigate and have regard to the wider issues, thus effectively taking stewardship of the case away from HMRC.

HMRC are then challenged to accept our conclusions. This in part is what I mean when I spoke earlier about taking control. It is a matter for HMRC whether they choose to accept our figures, and if not it is straightforward simply put the matter before tribunal. You can read more about tribunal by clicking here.


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