Row of terraced houses in a town

Case Study: Tax investigations in the Property Sector

In their dash for cash to maximise the tax take for HMRC, inspectors often argue disproportionately when they know they have a weak case. Or, they change tactics part way through an enquiry to exploit perceived weaknesses elsewhere. It is no wonder so many people subscribe to our Tax Investigations Service when they know inspectors drag out enquiries excessively in their desperation to generate extra tax.

Architecture firm

HMRC began an investigation into a firm of architects by requesting a formal visit.

The company’s payroll, including the treatment of expenses and benefits, was checked initially. The first concern raised was into the nature of the mileage and whether it was all business related. HMRC noted it was not always clear what the purpose of the journeys undertaken by the employees was or the routes which had been taken. By offering HMRC access to job files, it was possible to demonstrate and justify the sample journeys but, nevertheless, it was agreed to amend all future forms to prove better information.

HMRC also inquired about the directors’ expenses, as company credit cards were often used for entertainment purposes such as evening meals. However it was possible to demonstrate that the expenses related to specific jobs.

No material discrepancies were uncovered within the client’s operation of payroll or benefits and the enquiry was closed in less than 12 months. Nonetheless, professional fees approaching £1,000 were incurred putting up the successful defence.

Property rental business

A property rental business was selected for enquiry, which ultimately involved the submission of copious information. Despite a minor adjustment for disallowable expenses, no additional corporation tax was due.

The sting in the tail was how the enquiry branched out into the personal side of the client’s finances. This case proved particularly tricky as the client had many business interests from the past, partly involving the development of land.

Eventually, after protracted communication back and forth, HMRC backed down and accepted the arguments on losses to be carried forward. It cost over £4,500 of professional fees to present the case and protect the losses which reduced the final settlement.

Our tax investigations package offers protection to ensure that in the event of an HMRC enquiry all our accountancy fees in dealing with the enquiry are provided for.