Tax Disputes and Investigations – June 2023

According to HMRC’s press release, ‘this is the largest ever release of financial documents, surpassing the 2016 release of the Panama Papers’. Some 11.9 million offshore data documents have been published by the International Consortium of Investigative Journalists. It is this data which will form the basis for any HMRC investigations.

Letters require action within 30 days and careful consideration should be given to the response to HMRC. Offshore taxation can be an extremely complex area and penalties for errors can be as high as 200%. Reaching any meaningful conclusions about risks in these areas within the timescales imposed will therefore be very challenging. Any recipient of a letter should therefore ensure that they seek timely professional advice to ensure that their response to HMRC’s letter is carefully considered in light of all of the potential risks.

Enquiries into Research and Development Claims

HMRC have adopted a ‘volume’ approach to enquiries into R&D claims which is obviously causing a great deal of difficulty for practitioners and their clients. This approach involves the issue of standardised letters and standardised requests for information, with many enquiries being conducted without a named officer with whom the matter can be discussed. The often complex and technical nature of an R&D enquiry means that any dispute is likely to benefit from an open and collaborative dialogue between HMRC and advisers. However, it is becoming clear that the ‘volume’ approach is inhibiting that necessary dialogue.

Additionally, HMRC’s approach to penalties in some cases appears to be based on the premise that clients were under a duty to take further advice on R&D claims over and above that which they received from their R&D advisers.

From a procedural perspective, an enquiry into an R&D claim should be run in the same way as any other enquiry. As a result, in the absence of a change in approach from HMRC, we would encourage clients and their advisers to use the various procedural levers at their disposal (such as applications for closure notices, the statutory appeals process and appeals against information notices) where they feel HMRC’s approach is unreasonable.

Changes to Taxi, Private Hire and Scrap Metal Licences

Licencing authorities must make tax checks of all applicants renewing licences for trades requiring a licence to operate as a taxi, private hire, or scrap metal dealer. This applies to individuals, partnerships, and companies. These checks will be completed online and are an attempt by HMRC to tackle hidden economy.

The new procedures came into place in England and Wales in April 2022 and will be rolled out in Scotland and Northern Ireland on 2 October 2023. If any trader in these industries is not up to date with their tax responsibilities, it is likely to result in them losing the ability to obtain a proper operating licence.

We expect that HMRC will continue to look for areas where conditions around tax compliance can be imposed on licence-holders.

Case law update – HMRC guidance and claims<

A recent decision of the First Tier Tribunal highlights HMRC’s increased willingness to run arguments on procedural issues which diverge from their published position.

In Robert Williams v Revenue and Customs Commissioners [2023] UKFTT 429, the taxpayer had made a negligible value claim. HMRC refused the claim and applied to have the appeal against refusal struck out on the basis that the claim was not valid. The claim was argued not to be valid because it was made outside a return and did not include a declaration that the particulars in the claim were correctly stated to the best of the claimant’s knowledge and belief. HMRC’s CGT manual specified a form for making such a claim which did not include a requirement for the declaration to be made, and it appears that the claim was made in accordance with that guidance. Additionally, HMRC acknowledged that if there had been any objections to the form of the claim at the time it was made, this should have been followed up with the claimant at the time to resolve the situation, a point also included in HMRC’s guidance. Nevertheless, the tribunal still found that the claim was invalid and struck out the taxpayer’s appeal.

In light of this decision, and subject to clarification from HMRC, it would be advisable for any taxpayer making a claim outside a return to seek specific assurance from HMRC that the claim is validly made even where it is made in accordance with HMRC’s published guidance.

Other news

In other news we are delighted to welcome Ben Proctor to the team at Jon Preshaw Tax.

Ben joins us as Associate Tax Dispute Director andhas 20 years’ expertise and experience across the tax disputes field, with a particular focus on Corporate Tax matters and tax risk and governance issues.