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In June 2000, my client and his wife sold their partnership. Their individual and partnership tax returns were all submitted by September 2001. In January 2002, the Revenue issued an enquiry related to both the 1999-2000 and 2000-2001 partnership tax returns. On 5 April 2002, the Revenue closed the enquiry without making any adjustments to either year. It is a generally accepted principle that an agent's fees in respect of a Revenue enquiry where no adjustment is made are allowable. The problem here is that the partnership had already been sold and final accounts submitted.
In June 2000, my client and his wife sold their partnership. Their individual and partnership tax returns were all submitted by September 2001. In January 2002, the Revenue issued an enquiry related to both the 1999-2000 and 2000-2001 partnership tax returns. On 5 April 2002, the Revenue closed the enquiry without making any adjustments to either year. It is a generally accepted principle that an agent's fees in respect of a Revenue enquiry where no adjustment is made are allowable. The problem here is that the partnership had already been sold and final accounts submitted. The fees relating to the enquiry do not fall within the categories of post-cessation expenses outlined in section 109A, Taxes Act 1988.
Do readers have experience of relief for accountancy fees being allowed in such circumstances and, if so, are there any further grounds or precedents which I could quote?
(Query T16,125) - Too Late?
In my experience, The Revenue will allow these additional costs in such circumstances - either by an amendment to the returns enquired into - or by a simple one-off claim in a subsequent year. It should be a case of referring any reluctant Inspector to the Revenue's interpretation of the legislation under its Statement of Practice 16/91 followed by a suggestion by 'Too Late?' as to where he wishes the claim to appear - considering administrative ease and the tax rates at which relief should be given. In this respect SP16/91 remains silent as to where the fees should be allowed.
Rather than worry as to whether these fees are not allowable, 'Too Late?' should, under no circumstances not consider a claim, e.g. where it is thought that the post business period is a 'no tax liability' situation. The Revenue's Investigation Handbook (at paragraph IH 1560) helps out here:
'Period in which to allow expenses
'This Statement, itself, says nothing about the period for which the additional expenses will be allowed. With a continuing business, normal practice is to allow the expenses as a deduction in computing the profits of the accounting period in which they were incurred. However, with a business which has ceased, operating a similar practice might well mean that these expenses would be stranded with no income or profits to set them against. In such cases, the additional expenses can be allowed in the final accounts up to cessation.'
Another point highlighted by the query is the total unfairness in the Schedule E/Schedule D divide. The practice to allow such fees only arises where Case I or II profits are concerned. An old age pensioner worried by the officialdom of a section 9A, Taxes Management Act 1970 enquiry and seeking professional help to successfully ward off the distress gets nothing. So much for treating all taxpayers with equal fairness. - Jim.
The last paragraph of Revenue Interpretation RI192 reads on as follows.
'Accountancy expenses arising out of self-assessment enquiries.
'It is the practice to allow, in computing profits assessable under Schedule D, Cases I and II, the normal accountancy expenses incurred in preparing accounts or accounts information and in assisting with the self assessment of tax liabilities.
'Additional accountancy expenses arising out of an enquiry into the accounts information in a particular year's return will not be allowed where the enquiry reveals discrepancies and additional liabilities for the year of enquiry, or any earlier year, which arise as a result of negligent or fraudulent conduct.
'Where, however, the enquiry results in no addition to profits, or an adjustment to the profits for the year of enquiry only and that adjustment does not arise as a result of negligent or fraudulent conduct, the additional accountancy expenses will be allowable.'
Revenue Interpretation 130, Post-cessation business expenses - new relief, which was issued before RI192, deals with section 109A, Taxes Act 1988. The last paragraph states:
'Link with existing post-cessation expenses provision
'The new relief exists alongside the rules already on the statute book for post-cessation receipts and expenses. Those rules provide that any loss or expense which would have qualified as a trading deduction had the business not ceased is relieved against post-cessation receipts. But where the deductions exceed the post-cessation receipts for a year of assessment, the excess can only be carried forward and relieved against any post-cessation receipts arising in later years. Where an expense qualifies for sideways relief under the new rules as well as for carry forward under the provision described above, the new rules thus take priority'.
As the expense in question is classed as an allowable deduction and as there is no post qualifying receipt against which it can be set off, then combining the effects of RI130 and RI192, there would appear to be a good reason for arguing that the enquiry expense should be allowed either as 'sideways relief under the new rules', or if that does not meet the necessary requirements, then perhaps it could be argued that the conception of the 'Election for carry back' rules Section 108, Taxes act 1988, in respect of post-cessation receipts be used in reverse, saying that if it is good for receipts, then it is good for expenses. This would obviously involve the carrying back of the expenses to 2000-01 (after all, they (partly) relate to that year), and this would be followed by the submission of repaired pages of the 2001 partnership and personal tax returns by 31 January 2003. - N.K.
Extract from reply by John Price:
Regardless of the position under income tax, the clients will get their VAT back if they apply to Customs under Regulation 111(5) of the VAT Regulations SI 1995 No 2518. The right to reclaim VAT incurred post-deregistration applies to services only, and not goods, and the relevant tax invoices may have to be produced. The usual three-year time limit applies. The National Advice Service (0845 010 9000) will provide form 427 on which to make the claim.
