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Replies to Queries - 2 - Questions, questions

16 January 2002
Issue: 3840 / Categories:

In the opening letter of an enquiry, I have been asked to supply not only the accounts for the year in question (e.g. in an enquiry into the 1999-00 tax return, accounts for the year ended 30 April 1999 and all the accompanying paperwork) but also statements and passbooks, etc. for any other bank or building society account my client has an interest in covering the 18-months period from 1 May 1998 to 31 October 1999. I have also been asked for my working papers including the trial balance.

In the opening letter of an enquiry, I have been asked to supply not only the accounts for the year in question (e.g. in an enquiry into the 1999-00 tax return, accounts for the year ended 30 April 1999 and all the accompanying paperwork) but also statements and passbooks, etc. for any other bank or building society account my client has an interest in covering the 18-months period from 1 May 1998 to 31 October 1999. I have also been asked for my working papers including the trial balance. In the same opening letter the Inspector has queried the reason for a change in the private proportion percentage as shown in the 2001 tax return. Thus it seems to me that they are in effect looking at three years at once, viz 1998-99 (private statements), 1999-00 (accounts, etc.) and 2000-01 (private proportion).

My queries are:

(a) Do I have to provide my working papers and trial balance; and

(b) If I give reasons for the change in private proportion in 2000-01, would the Revenue then be unable to open an enquiry into the 2000-01 return at a later stage on the grounds that it had already had one bite of the cherry?

(Query T15,937) – Puzzled.

 

 

(a) In an ordinary local investigation case, such as this, the practitioner cannot be forced to supply working papers. The investigation is aimed at the client and the quality or otherwise of his or her records. After all, it is the client upon whom the section 9(A) notice is served. Frequently, however, some practitioners prefer to supply photocopies of their working papers in such circumstances, so as to save protracted correspondence. Some Inspectors, when accustomed to such a climate of co-operation, appear to have mistakenly acquired an all-embracing view of exactly what they are empowered to require production of! Ask the Inspector to produce his specific authority for requesting sight of the working papers! I venture that will send him scurrying off to his Hector-in-Charge for advice, following which he will let the working papers aspect drop.

There is a remotely-possible and more sinister aspect to this, of course, which may be that the Revenue has a deeper motive for wishing to see working papers. Such a motive would be to ascertain whether a whole string of otherwise unrelated cases belonging to the same practitioner should be investigated, for whatever reasons. In turn, if the Revenue is eventually able to succeed in a string of cases, it may well bring in Special Compliance Office to investigate the practitioner.

(b) This aspect could and should have been anticipated by the practitioner. There is plenty of room on tax returns to put notes explaining apparent anomalies. I prefer to provide relevant explanations in the notes to the accounts, which are then submitted with the tax return, upon which the explanations are duplicated or amplified. This method has stood us in good stead since self assessment began, since it reduces the misunderstandings that mere use of the numbered tax return boxes inevitably produce. To answer the second part of this question, all the Inspector is looking for is to settle the question of private proportions, which would still leave him free to enquire into other aspects of the 2000-2001 return until 31 January 2003.

Experience leads me to believe that the practitioner who adopts a too-pedantic approach to the release of information inadvertently treads a fine line between being technically correct and implied obstruction/non-co-operation. The querist needs to spell out what the Inspector is legally entitled to, as outlined above, and then co-operate fully. Remember that Inspectors sometimes show surprising latitude in applying the tax system – one may need this Inspector's help or understanding later on in the investigation, when the matter of penalties is addressed. – Cornwall.

 

Practitioners may have noticed a significant change in approach from the Inland Revenue with opening enquiry letters since the introduction of corporation tax self assessment. This query may be an example of the more detailed information requested but, whether under section 9A, Taxes Management Act 1970 or paragraph 24(1) of Schedule 18 to the Finance Act 1998, the legislation makes clear what should be provided but not, unfortunately, what may be asked for. Take for example a standard paragraph which might appear in a corporation tax self assessment enquiry: 'I trust you agree that the processing of enquiries may be expedited if the director's private bank/building society and credit card statements are provided. Are you in agreement to providing these items for the period concerned, please?'.

Paraphrased, this reads: 'You know I should not really be asking for this information, but it will be a great help in my investigation and save me the trouble of a formal enquiry under section 9A, Taxes Management Act 1970, upon the director …'

A polite response is called for.

Turning to the specific enquiries:

(a) Working papers are not considered to fall within the remit of what the Revenue is entitled to. The Inspector is entitled (under section 19A, Taxes Management Act 1970) to documents within the taxpayer's power or possession. Documents which belong to 'Puzzled', such as working papers, are not within the client's power and need not be made available. In view of the Revenue's Code of Practice concerning investigations, the particular Inspector should be asked why he is requesting such information.

(b) If the enquiry relates to 1999-2000, the Inspector should confine his 'private usage' line of enquiry to that year. No doubt add-backs are being sought, but it would do no harm to volunteer information where there is every reason to suspect it would prevent an enquiry into the following year. If of course a publican should decide after an abstemious life of teetotalism that he is suddenly verging on the border of alcoholism, then perhaps a little more thought is needed rather than attribute the change to the opening of a Revenue enquiry. The Inspector has not had one bite of the 2000-01 cherry crop, as an enquiry has not formally been opened for that year. – Jim.

Extract from reply by 'New Road':

No questions should be answered for 2000-01 unless a notice of enquiry is issued. The closure of that enquiry would prevent other enquiries, subject to discovery, but I doubt that this is a 2000-01 enquiry. I suspect that the Inspector is using the 2000-01 change to show that 1999-00 is incorrect and would argue that he is not asking about 2000-01 but about 1999-00. If that is the case, he should be asked to rephrase the question.

Issue: 3840 / Categories:
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