Taxman backs down over warning letters

HM Revenue & Customs has been forced to back down on controversial
letters sent to thousands of taxpayers questioning their affairs, Accountancy
Age can reveal.

The scheme attempted to forge a new way of communicating with taxpayers, in
highlighting key mistakes in tax returns to key groups in letters to individual

But advisers have objected strongly to the letters, which are an extension of
earlier ‘enabling letters’, saying that there was no legal basis for the scheme,
and that taxpayers were being accused of making mistakes in their tax returns
simply for being part of certain groups and classes of society.

HMRC effectively admitted the shift this week, announcing consultation.
Director general Dave Hartnett said: ‘The intervention pilots have shown HMRC
how we can make the enquiry process more effective for both customer and
department. We want to share that learning with tax advisers and others in
constructing the next round of pilots.’

HMRC will now look to introduce another scheme that falls below the level of
an official enquiry. ‘HMRC has listened to criticisms, and is now not expected
to follow the path it was heading on,’ said one senior tax expert.

Others suggested HMRC needed to make it clear that the new scheme was
separate from enquiries, and was not a ‘free-for-all’ on taxpayers.

HMRC introduced the interventions scheme in July, sending out 14,000 letters
to taxpayers.

The interventions crossed a huge range of individuals and business sectors.
IT contractors were questioned over whether they had added back non-business
expenditure for corporation tax purposes, while directors were questioned over
their business expenses. Antique dealers, jewellers and car dealers were also
asked to look at their stock valuations.

However, tax advisers warned that the letters were sometimes technically
incorrect, and did not make it clear that responding was voluntary.

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