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14 March 2001
Replies to Queries – 2
Ethnic minority enquiry
A client of our company is the subject of an investigation by the Revenue. He is a small trader and a member of an ethnic minority. His knowledge of English is somewhat limited.
Ethnic minority enquiry
A client of our company is the subject of an investigation by the Revenue. He is a small trader and a member of an ethnic minority. His knowledge of English is somewhat limited.
Replies to Queries – 2
Ethnic minority enquiry
A client of our company is the subject of an investigation by the Revenue. He is a small trader and a member of an ethnic minority. His knowledge of English is somewhat limited.
The Inspector, having examined the records, then requested an interview. We explained the position to the client who stated that he did not wish to attend an interview. We therefore advised the Inspector accordingly. We are aware that according to the Inland Revenue's Enquiry Handbook it cannot insist on an interview. However, the Inspector states as follows:
'In view of the nature of the enquiries and the fact that following a record review there are many points that need to be discussed, a meeting with the proprietor is considered the most effective means to bring an enquiry to a speedy conclusion. Not only does it save time but also potential additional cost to your clients that may result from protracted correspondence. It is inevitable that various points will lead from any particular question asked on the records and it is with this in mind that I feel it is impractical to conduct the remainder of the enquiry by correspondence.'
In the circumstances of this case, how should we proceed? Should we request a closure notice under section 28A(6), Taxes Management Act 1970, or approach the Inspector's Regional Controller or the Adjudicator?
(Query T15,769) – Shatin.
The Inland Revenue does consider that meetings are a useful method of obtaining information from a taxpayer without undue cost or delay, and so the Inspector will continue to press for a meeting.
As 'Shatin's' client does not wish to attend an interview, I would refer him to the Inland Revenue's Investigation Handbook at paragraph IH 2320. This deals with advice to Inspectors on when resistance to a meeting can be expected and how such objections can be overcome.
'Shatin' should point out that the manuals state that taxpayers do not have to attend meetings and that, in such cases, the Inspector should seek alternative avenues to satisfy himself as to the accuracy of the taxpayer's tax return.
If the Inspector is unwilling to continue with his queries by correspondence, this is not acceptable. Correspondence will almost certainly increase the length of the investigation and the costs on both sides, but that is not a reason for inaction.
However, at paragraph IH 2320 it does go on to say that where the outstanding queries cannot be settled by correspondence alone, the Inspector should list the case for a contentious Commissioners' hearing. This will, of course, give the Inspector the opportunity to ask the questions that he wants to ask at a meeting.
In 'Shatin's' place, I would not advise a client to attend a meeting with the Revenue where the language to be used is not familiar to the client. Language has many nuances and the client could well answer a question that on the surface is innocuous, but has other implications. The Inspector would of course insist that if any misunderstandings did arise he would consider any subsequent corrections, but many Inspectors are like the proverbial super tankers and can be very difficult to steer away from a set course. This difficulty is highlighted, once again in the Revenue's Investigation Handbook at paragraph IH 2320, where Inspectors are advised to consider carefully the veracity of any amended explanations or information.
A possible compromise arises if 'Shatin's' client has a language where he would feel comfortable in taking part in an interview. In that case, the client could approach a member of his community to act as an interpreter and for the interview to be conducted in that language.
Should it prove impossible to resolve this impasse, a closure notice under section 28A(6), Taxes Management Act 1970 could be sought. However, even if the Inspector was directed to issue a closure notice by the General Commissioners, no direction is given as to the amount of any additions to profit included when calculating the tax payable to be included in that notice. Therefore if there are several unresolved points, the Inspector is likely to assume the worst and issue a closure notice incorporating the effect of those potential adjustments. The client will then have to appeal against the amended self assessment and appear before the General Commissioners to try to explain why no adjustments should have been made. Given that this involves a taxpayer with limited English having to appear before the Commissioners twice, this route is far from being a guaranteed success.
In terms of taking matters to the Regional Controller or the Adjudicator, the first point to make is that the adviser will have to receive the Inspector's refusal to proceed with the enquiry by correspondence and/or his refusal to an interview in a language other than English. Until that point has been reached, the Inspector is still proceeding with the enquiry albeit grudgingly and one would be unlikely to succeed. A further point in relation to the Adjudicator is that before referring a matter to her, one must first exhaust the complaints procedure with the Inland Revenue itself. – Hodgy.
I was recently involved in a similar enquiry, involving a member of an ethnic minority whose mother tongue was not English but whose income ran well into six figures. As in 'Shatin's' case, the taxpayer was very reluctant to attend a personal interview, and in fact did not do so; and the enquiry was eventually closed without any additional tax becoming payable. It is of course true that the Inspector cannot insist on an interview, but it is important to bear in mind that, if he should discover any irregularities and the enquiry ends with a charge of interest and penalties, the client's refusal to attend an interview will be taken into account when the question of mitigation of penalties is considered. If, however, both 'Shatin' and his client are absolutely confident that the return under enquiry is correct and complete, then I think that they have nothing to fear and should stick to their guns.
I suggest that a response be sent along the following lines:
'It seems clear that our client is an honest taxpayer who has made no attempt to conceal any income or to overstate any expenditure. If your review of his records has thrown up any matters that appear to you prima facie to be unsatisfactory, there appears to be no reason why such matters cannot be aired in writing: we have every confidence that a fully acceptable explanation will be available. Nor do we think that there are any areas that you would wish to discuss at a meeting but that could not equally be discussed in correspondence … Moreover, this enquiry has already involved our client in a great deal of unnecessary expense, and his attendance at a meeting would not only add to this expense but could also result in a fairly considerable loss of income ... If, therefore, there are any relevant matters on which you would like additional information, we should be pleased if you would specify them, and we will continue to do all we can towards bringing this enquiry to an end in the shortest possible time. In the absence of any suggestion of wrongdoing, however, and for the reasons given above, we do not feel that our client's interests would be best served by interrupting his working procedures in order to attend a meeting.
'It should also be pointed out that it is not always true to say that “meetings are far more cost-effective and far less time-consuming than dealing with matters by correspondence”. Questions of detail … might well be impossible to answer from memory across the desk, so that we would still have to go away, look up the points, and reply in writing.' – Shap.
Extract from reply by 'Man of Kent':
Having ensured that the file is complete, the practitioner should consider whether an interview could help, and is not merely a fishing expedition. In this connection it is worthwhile asking the Inspector for a list of questions that he anticipates asking at the interview, so that the client can be sure of having the information to answer them. If an interview seems likely to help, the client should be told (not asked) to attend, bringing an interpreter if needed. Make sure that the prospective interviewer is actually an Inspector.
Ethnic minority enquiry
A client of our company is the subject of an investigation by the Revenue. He is a small trader and a member of an ethnic minority. His knowledge of English is somewhat limited.
The Inspector, having examined the records, then requested an interview. We explained the position to the client who stated that he did not wish to attend an interview. We therefore advised the Inspector accordingly. We are aware that according to the Inland Revenue's Enquiry Handbook it cannot insist on an interview. However, the Inspector states as follows:
'In view of the nature of the enquiries and the fact that following a record review there are many points that need to be discussed, a meeting with the proprietor is considered the most effective means to bring an enquiry to a speedy conclusion. Not only does it save time but also potential additional cost to your clients that may result from protracted correspondence. It is inevitable that various points will lead from any particular question asked on the records and it is with this in mind that I feel it is impractical to conduct the remainder of the enquiry by correspondence.'
In the circumstances of this case, how should we proceed? Should we request a closure notice under section 28A(6), Taxes Management Act 1970, or approach the Inspector's Regional Controller or the Adjudicator?
(Query T15,769) – Shatin.
The Inland Revenue does consider that meetings are a useful method of obtaining information from a taxpayer without undue cost or delay, and so the Inspector will continue to press for a meeting.
As 'Shatin's' client does not wish to attend an interview, I would refer him to the Inland Revenue's Investigation Handbook at paragraph IH 2320. This deals with advice to Inspectors on when resistance to a meeting can be expected and how such objections can be overcome.
'Shatin' should point out that the manuals state that taxpayers do not have to attend meetings and that, in such cases, the Inspector should seek alternative avenues to satisfy himself as to the accuracy of the taxpayer's tax return.
If the Inspector is unwilling to continue with his queries by correspondence, this is not acceptable. Correspondence will almost certainly increase the length of the investigation and the costs on both sides, but that is not a reason for inaction.
However, at paragraph IH 2320 it does go on to say that where the outstanding queries cannot be settled by correspondence alone, the Inspector should list the case for a contentious Commissioners' hearing. This will, of course, give the Inspector the opportunity to ask the questions that he wants to ask at a meeting.
In 'Shatin's' place, I would not advise a client to attend a meeting with the Revenue where the language to be used is not familiar to the client. Language has many nuances and the client could well answer a question that on the surface is innocuous, but has other implications. The Inspector would of course insist that if any misunderstandings did arise he would consider any subsequent corrections, but many Inspectors are like the proverbial super tankers and can be very difficult to steer away from a set course. This difficulty is highlighted, once again in the Revenue's Investigation Handbook at paragraph IH 2320, where Inspectors are advised to consider carefully the veracity of any amended explanations or information.
A possible compromise arises if 'Shatin's' client has a language where he would feel comfortable in taking part in an interview. In that case, the client could approach a member of his community to act as an interpreter and for the interview to be conducted in that language.
Should it prove impossible to resolve this impasse, a closure notice under section 28A(6), Taxes Management Act 1970 could be sought. However, even if the Inspector was directed to issue a closure notice by the General Commissioners, no direction is given as to the amount of any additions to profit included when calculating the tax payable to be included in that notice. Therefore if there are several unresolved points, the Inspector is likely to assume the worst and issue a closure notice incorporating the effect of those potential adjustments. The client will then have to appeal against the amended self assessment and appear before the General Commissioners to try to explain why no adjustments should have been made. Given that this involves a taxpayer with limited English having to appear before the Commissioners twice, this route is far from being a guaranteed success.
In terms of taking matters to the Regional Controller or the Adjudicator, the first point to make is that the adviser will have to receive the Inspector's refusal to proceed with the enquiry by correspondence and/or his refusal to an interview in a language other than English. Until that point has been reached, the Inspector is still proceeding with the enquiry albeit grudgingly and one would be unlikely to succeed. A further point in relation to the Adjudicator is that before referring a matter to her, one must first exhaust the complaints procedure with the Inland Revenue itself. – Hodgy.
I was recently involved in a similar enquiry, involving a member of an ethnic minority whose mother tongue was not English but whose income ran well into six figures. As in 'Shatin's' case, the taxpayer was very reluctant to attend a personal interview, and in fact did not do so; and the enquiry was eventually closed without any additional tax becoming payable. It is of course true that the Inspector cannot insist on an interview, but it is important to bear in mind that, if he should discover any irregularities and the enquiry ends with a charge of interest and penalties, the client's refusal to attend an interview will be taken into account when the question of mitigation of penalties is considered. If, however, both 'Shatin' and his client are absolutely confident that the return under enquiry is correct and complete, then I think that they have nothing to fear and should stick to their guns.
I suggest that a response be sent along the following lines:
'It seems clear that our client is an honest taxpayer who has made no attempt to conceal any income or to overstate any expenditure. If your review of his records has thrown up any matters that appear to you prima facie to be unsatisfactory, there appears to be no reason why such matters cannot be aired in writing: we have every confidence that a fully acceptable explanation will be available. Nor do we think that there are any areas that you would wish to discuss at a meeting but that could not equally be discussed in correspondence … Moreover, this enquiry has already involved our client in a great deal of unnecessary expense, and his attendance at a meeting would not only add to this expense but could also result in a fairly considerable loss of income ... If, therefore, there are any relevant matters on which you would like additional information, we should be pleased if you would specify them, and we will continue to do all we can towards bringing this enquiry to an end in the shortest possible time. In the absence of any suggestion of wrongdoing, however, and for the reasons given above, we do not feel that our client's interests would be best served by interrupting his working procedures in order to attend a meeting.
'It should also be pointed out that it is not always true to say that “meetings are far more cost-effective and far less time-consuming than dealing with matters by correspondence”. Questions of detail … might well be impossible to answer from memory across the desk, so that we would still have to go away, look up the points, and reply in writing.' – Shap.
Extract from reply by 'Man of Kent':
Having ensured that the file is complete, the practitioner should consider whether an interview could help, and is not merely a fishing expedition. In this connection it is worthwhile asking the Inspector for a list of questions that he anticipates asking at the interview, so that the client can be sure of having the information to answer them. If an interview seems likely to help, the client should be told (not asked) to attend, bringing an interpreter if needed. Make sure that the prospective interviewer is actually an Inspector.
