The Benefits of Enquiry Insurance
One of our clients is in the construction business. In two of the last three years, HMRC have selected his return for a full enquiry. It is likely that the key ratios on his accounts did not match with their expectations. We provided HMRC with full details of information requested and in each case, the enquiry was closed without any change to his tax return. All of our fees, which in each case exceeded his usual annual fee, were covered by our enquiry insurance.
Standing your Ground
Our client ran a sizeable payroll. There was a routine PAYE enquiry by HMRC, during which a number of minor benefits were identified. HMRC initially argued that these amounts should be included in a settlement agreement, which would cost the client around £10,000. After identifying that some of the benefits qualified as free from tax, we were able to persuade HMRC that the others should be included in the P11D’s for the year. HMRC accepted this, with the eventual cost to our client being reduced to under £1,000. Again, all our fees were met by our enquiry insurance.
In recent years, HMRC have become paranoid about the failure (?!) of taxpayers to report overseas income. So much so, they have introduced draconian penalties if such income is not reported correctly. Historic errors can be corrected under the old penalty regime, provided HMRC are notified before September 2018. We have assisted a number of clients in making these disclosures. It is important to remember that it is perfectly legal to receive income and gains from overseas investments. However, the penalties arise if anything is omitted from the tax return. Please do remember to ask us for advice if you have foreign income or gains and are unsure what to include in the tax return.
EIS and SEIS investments made in small companies attract tax relief up front of 30% and 50% respectively. In addition, the eventual disposals are tax free. However, since the incentives are substantial, HMRC apply the rules strictly. Any disposal or agreed to dispose of your shares within the three years after investment will result in the loss of the tax relief. We encountered this problem when one of our clients had invested in a company which was negotiating additional finance from a major PLC. Their legal advisers (not tax specialists) insisted that the relief was not at risk. However, after we insisted on them consulting their in-house tax specialists, they agreed with our analysis. This allowed our client to make an informed decision. These are valuable tax reliefs. Important therefore to monitor their status before the investment and throughout its ownership.
EIS is Complicated
One of our clients invested in a start-up, on the understanding that it was a qualifying EIS investment. Prior to preparing his tax return for the year, the company agreed a deal with a PLC. This deal gave an option to the PLC to acquire the company at a later time, depending on targets. The company lawyers (in the City) insisted all was well, but we advised our client that his EIS relief would be lost and recommended that the lawyers check with their internal tax specialists and that he should then renegotiate. The tax specialist confirmed our view and we were then able to help our client to negotiate a better deal with the company.