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19 October 2010
'Why are HMRC pursuing such flawed cases as that of Mr Ho?'
I read with interest the report regarding Mr Ho’s case.
I was trained as an Inland Revenue accounts investigator some 30 years ago. Even at that time inspectors were aware that there were significant flaws in the standard approach to quantifying potential understatements. These were that:
- cash flow tests were almost entirely useless unless the opening cash figure could be established with reasonable accuracy and the taxpayer (we did not use the term ‘customer’ in those days) had a set pattern of spending – these conditions were rarely satisfied in practice; and
- a taxpayer’s business model could vary substantially from what was suggested in the official business notes. In particular it was not uncommon to encounter people who made no attempt to maximise their income either because they preferred a more relaxed lifestyle or because their health did not permit them...
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