Adviser: Has the taxman gone soft?

Link: Small practice guide

Recently I had to visit our local inspector of taxes with a client whose accounts were being investigated. A builder by trade, this is a client who I believe to be pretty straight, and I had no qualms about going head to head with an inspector seeking to increase my client’s tax bill.

I was a bit nervous, however. My client was to be there and I felt it helpful for his book-keeper (his mother) to attend, together with my manager and myself. Four against one seemed a good ratio initially, but then I worried about whether the inspector might be over-defensive.

I was comforted, therefore, when we arrived to find that he had a trainee with him to listen in and take notes. Whether due to the trainee’s presence or not, the interview was polite, to the point and professional. My client had answers to all but the most detailed of questions, which we agreed to go away and investigate.

The client’s mother was a star performer. At one point, the inspector suggested we might be better keeping more detailed work-in-progress records. Her response was a gentle admonition that the records she kept were precisely as instructed by one of his ‘very helpful young colleagues’ when she had visited the tax office just after her son had set up in business.

All in all a satisfactory meeting. It got me wondering, though, when was the last time that I had sat through such a sensibly conducted meeting with the Revenue, and I have to admit it’s been some time. Indeed, I’ve been concerned for a while now about the more adversarial approach that seems to characterise investigations. Typically it’s rare that they reach a satisfactory conclusion for either side.

More worryingly, it’s a situation that has resulted in a kind of ‘protection racket’ in the form of a fee protection insurance industry, so that clients can pay for the exorbitant costs of running an enquiry to its conclusion; insurance you can’t really afford to be without.

The profile of inspectors seems to have changed from the old career civil servants, who become a bit cynical after meeting a number of taxpayers seeking to avoid paying their dues, but nevertheless command respect and consideration. The new breed of inspectors seem to believe their role in life is to extract the maximum from the taxpayer, who is in their mind guilty until proved innocent.

That leads to some rather fanciful estimates being put to the taxpayer with a challenge to prove the Revenue wrong. Some of my firm’s best clients were recommended by tax inspectors 40 or 50 years ago, with kindly advice to ‘find yourself a good accountant and then come back again’ – clients whose children and grandchildren are still clients today.

I hope my recent experience is a sign that the pendulum is swinging back towards better cooperation between professionals and the Revenue. If the recent legislation to outlaw the most outrageous tax avoidance schemes by forcing early disclosure helps that, then perhaps it isn’t all bad news.

• Mark Spofforth is an ICAEW council member and partner at Spofforths Send in your questions for our adviser panel of experts on matters relating to small practices by emailing [email protected].