Trying to do the best that you can

Do you know the market value of an unquoted share in which there is no market?

Do you know the arm’s length price of goods or services which are only supplied between connected parties?

Can you identify a partnership which in terms of size falls at the smaller end of the intermediate range?

Do you know what sort of tax planning is acceptable?

Can you define ‘for the enduring benefit of the trade?’

If you can, and you have an intimate knowledge of a few hundred thousand pages of statute law, case law, Revenue manuals and interpretations, you should have no difficulty in completing the self-assessment tax return for your client, your company, your firm or yourself.

Now persuade others

Better still, if you can convince the Inland Revenue, or, if necessary, the Commissioners or Courts that you can do so, and arrive at the same figure or decision that they would have done, you can avoid interest, penalties and prosecution.

The problem is if the Revenue takes a different view. In re Holt, for example, the taxpayer valued shares at 11/3d and the Revenue at #3. This is 576% of the taxpayer’s figure.

In such circumstances, however, it is always reassuring to be able to turn to experts, and in the Holt case this improved things enormously as the range of the experts’ figures was between 12/2d and 34 shillings so that the highest figure was a mere 272% of the lower. In re Lynall deceased, the experts did rather better, varying from #2 10 shillings to #5, the Revenue’s expert’s figure being precisely double that of the taxpayer’s expert.

The acceptable range

I am not trying to imply that experts are incompetent, merely that the taxpayer in self-assessing has to make a judgement in order to submit a correct and complete return. As the Revenue is likely to enquire into only about 3% of self-assessment returns for individuals – although, no doubt, a much higher percentage for companies – it may not be easy to persuade the Revenue to accept the taxpayer’s judgement in every case.

Obviously, the question of what is a reasonable judgement to substantiate a self assessment will depend on the circumstances, but I hope I have illustrated that there is considerable room for disagreement, even among experts addressing their minds to the particular point in question.

It is to be hoped that the Inland Revenue will accept that there is no right or wrong answer in matters of subjectivity, merely an acceptable range.


taxpayers can reduce the likelihood of substantial bills for interest and possible penalties by making a sensible judgement in the first instance, by ensuring they have records to show the figures used have not been capriciously plucked from thin air, but are the result of reasoned judgement on the information available, having taken professional advice on matters outside their own expertise. This should help with any enquiries made by the Revenue.

It is also important, however, to ensure that the Revenue has sufficient information to be able to recognise where material judgmental decisions have been made, so it may enquire further if it deems appropriate. Only by disclosure can a subsequent discovery be resisted.

The Keith Committee recommendation that the taxpayer should specifically disclose where the benefit of the doubt has been taken was never enacted, and there is no requirement to do so. There is a requirement to disclose enough to ensure that the Revenue could have been reasonably expected, on the basis of the information made available, to appreciate how the taxpayer has arrived at his self-assessment. Failure to do so might not merely mean that a discovery adjustment would be difficult to resist, but could be construed as negligence or even evasion.

It is always worth asking yourself: ‘Will I feel comfortable justifying my decision before an independent tribunal?’

Nigel Eastaway of TaxServe is chairman of the technical committee of the Chartered Institute of Taxation

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