Partner Article

The taxman and the curious case of mistaken identity…

HMRC has a vast array of weaponry at its disposal to catch tax dodgers - of which by far the most powerful is information.

We are told that the much-heralded ‘Connect’ computer system is helping HMRC to risk-profile cases considered ripe for investigation, but it’s clear that to be truly useful, information needs to be properly reviewed and understood before it is acted upon.

At the ‘small individual’ end of its customer base, instances are emerging of HMRC falling short of the mark in identifying those being challenged.

The use of information gathered as part of HMRC’s recent property campaign is an example of where they need to interpret third party information better in order to improve efficiency in the collection of additional tax liabilities.

HMRC has reviewed Stamp Duty Land Tax (SDLT) forms and identified where people have disclosed they are the seller of a property. They then compare this with individual Tax Returns, and where there’s a difference between the SDLT form and the Tax Return, HMRC investigates.

But what if the individual completing the SDLT form is a solicitor, or other professional, acting in a capacity other than a personal one, such as a Trustee, Executor or Personal Representative?

Will that individual be taken up for investigation personally and thus wrongly troubled by HMRC? Unfortunately the answer is yes, and we’ve seen such instances occurring.

Other examples of HMRC ‘jumping the gun’ include bank interest queries where individuals are acting as an executor, and also cases where the account being challenged is a cash ISA and therefore tax exempt.

We question the level of background work undertaken by HMRC before deciding to challenge innocent taxpayers. Further careful research would save time and resources, and avoid the anxiety faced by individuals under enquiry.

Maybe the answer is to return to an idea previously suggested. Why not legislate to ensure that all third party bank and other reports are copied to the taxpayer as well as HMRC?

This simple approach would ensure that more Tax Returns are completed correctly and give the individual opportunity to ask the information provider to amend or clarify anything that may be erroneous. It would also save HMRC the time and trouble of challenging people whose tax affairs are correct.

This was posted in Bdaily's Members' News section by Baker Tilly .