About TaxConcern

People in business use the services of an accountant to prepare their financial accounts and to deal with taxation of business profits, personal income, capital gains, claims and filing of tax returns. This is called tax compliance.

The accountant relies upon the clients (sole trader, partnership and director) to provide all the relevant details when dealing with tax compliance.

For example for a limited company you would sign something like this …. we have approved these accounts for the year ended 31st August 2006 set out on pages 2 to 4. In accordance with your instructions, we have compiled these unaudited accounts from the accounting records and information and explanations supplied to us.

For example for a self-employed and a partnership you would sign something like this …. I/we approve these accounts for the year ended 31st August 2006 set out on pages 2 to 4 and confirm that I/we have made available all relevant records and information for their preparation and give my authority for them to be submitted to the Inland Revenue.

When the financial accounts and tax computations have been submitted to the HM Revenue & Customs this is the end of the tax compliance work. This also satisfies the HM Revenue & Customs in terms of compliance law.

However, there are occasions where the HM Revenue & Customs are not satisfied with the financial accounts submitted to them can result in an enquiry or an investigation. This is called tax investigation.

This can cause great concern to the taxpayers as well as time consuming in dealing with matters raised. It is therefore essential that the taxpayers obtain proper professional representation experienced in tax investigation.

All HM Revenue & Customs enquiries and investigations commence by sending out letters with the appropriate code of practices to the taxpayers and their accountants. Most accountants would ask you to sign a new instruction dealing with the tax investigation work. When you receive an enquiry letter or an investigation letter the taxpayers have two choices the first is their accountants the second is to instruct an independent professional experienced in tax investigation work.

If you chose your accountant, what is the HM Revenue & Customs’ view on your choice of professional representation? In the HM Revenue & Customs’ enquiry manual 2788 it states “accountants are employed by their clients to prepare and audit accounts and sometimes to handle their taxation affairs or other matters. In no capacity is the accountant authorised to search for tax evasion (unless specifically required to do so during an enquiry case) – he or she is the agent of the client who is responsible for the accuracy of the information provided. Occasionally an accountant will discover evidence of tax evasion. If he or she is a member of a professional body, there are strict rules governing the actions to be taken in such circumstances. Of course what an accountant actually does is a matter for the professional body, and is not something an Inspector should comment upon. Unqualified accountants will act according to the dictates of their personal ethics”

So the accountants help taxpayers with their tax compliance work. The HMRC scrutinised the tax compliance work and turn it into enquiries or investigations if they are not satisfied.

HM Revenue & Customs have scrutinised thousands of tax compliance work and their view can be found on the enquiry manual 2951 “various checks can be applied to test the accuracy of business records. Merely duplicating the work of accountants or auditors is unlikely to be a productive use of your time. In the run of the mill unaudited case, the agent’s work will have consisted of preparing accounts from whatever records have been kept. If there is a well kept proprietary book that will be relatively straightforward, but if it has been necessary to work up from bank statements and retained invoices it will have taken some time and the result will probably rest on a number of assumptions. The agent is unlikely to have tested the veracity of the figures and will have been retained simply to prepare accounts. The fee charged represents the possibly conflicting demands of the work which needs to be done to have confidence in the result and what the market place will bear. The fee in the accounts, allied to your knowledge of local rates, will give some indication of the time spent in preparing the accounts but is not conclusive. When described, often in response to initial enquiries, the work may seem extensive. However, what time has there been to undertake any one task in depth, and to scrutinise the figures which have emerged? Most accountants treat the records of small businesses as incomplete and make adjustments in the course of preparing accounts. These adjustments usually take the form of net additions to sales or drawings in order to balance the cash account, although adjustments to purchases or other allowable debits are sometimes made. Some estimates may also be brought in to cover minor unrecorded items (for example, postage, wrapping and cleaning materials)”

In another enquiry manual 2952 “where an accountant has simply prepared accounts from books and records supplied it is likely that there will have been no systematic checking of the underlying documents. If the accounts have been audited there will have been sample checking of prime documents. However, in many areas this will have been limited, as dictated by the audit programme. The roles of enquiry officer and auditor are different”

In the accounts investigation interview (formally Inland Revenue Training Office Manual), Tax Inspectors are told that “the taxpayer and the accountant are to some extent in the dark, they may be wondering what is coming next. You hold the initiative…. Few accountants and solicitors are really experienced in investigation work – even fewer downright obstructive on principle. You could be the only person present who is at home in this situation…. You hold the initiative as you started the proceedings. You must retain the initiative and this must be implicit in all your dealings with the taxpayer and the accountant. You run the interview and the enquiry”

HMRC’s recommendation “You can, at any time, choose to be professionally represented , for example, by an accountant or tax adviser and change or stop using a professional adviser. You need to complete a form 64-8 when you appoint a new adviser. This lets us know that your professional adviser has the authority to talk to us on your behalf. You should make sure your professional adviser has all the facts. You are personally responsible for your own tax affairs and for the accuracy of all information supplied to us, even if you have a professional adviser”

We are professional tax representatives in the United Kingdom at all levels of HM Revenue & Customs enquiries and investigations.