Stand and deliver

KEVIN SLEVIN looks at situations where a tax practitioner thinks that the Officer handling an enquiry into a tax return has got it wrong.

IT IS SURPRISING, but we are now living through the ninth tax year for which the income tax and capital gains tax self-assessment system will operate. Self assessment has brought about many changes in the UK's system of direct taxes. We have seen changes not only in procedures but also in attitude on the part of officials, changes in approach to case work by Officers of Revenue and Customs, and changes in the training within HMRC and more. Within the tax profession we have seen many changes too, not least of these being computerisation and the introduction of the January deadline for individuals, partnerships and trustees, a deadline which we now cope with and, on the whole, do so without too much pain.
Another element of change, which readers who handle technical disputes arising out of technical enquiries raised by HMRC will recognise, is that the calibre of the questions being asked by Officers in many cases is improving. Some Officers seem to have more time to think through the issues in the cases they are considering and have become better focused as a result. Self assessment has given individual Officers greater scope to enquire into client's tax affairs, and more time to consider matters and form their own judgments about the tax returns they select for examination. Needless to say, that does not mean the conclusions reached are always correct. Officers find themselves nearer to the action but this does not automatically mean they have a better view. A practitioner's job includes providing a number of action replays to assist the Officer.
Self assessment may be old news now but that does not mean the process of change is over. Simply put, as HMRC get better at raising appropriate enquiries, the tax profession must get better at servicing client needs where contentious matters arise out of those enquiries.

Tougher stance?

This article is about the growing requirement for tax practitioners to become more adept in two particular closely linked areas of the self-assessment process. Firstly, in the opinion of the writer, there is a need for many tax practitioners to improve their presentation skills with regard to

• the initial provision of factual information in support of the tax treatment adopted in a tax return; and
• the responses to questions during HMRC enquiries.

Secondly, and more importantly, practitioners need to appreciate that in the growing cut and thrust of handling enquiries, there will be many more occasions than in the past where practitioners can only properly handle the case to their client's best advantage if they can be seen by the Officer to be ready, willing and able to take contentious matters to a hearing of the Commissioners, including the Special Commissioners. Life is getting tougher. Officers are under pressure to get results.
It is all too easy for an Officer to pay lip service to a taxpayer's right of appeal to the Commissioners, where he believes that that is the last thing the taxpayer's adviser wants to do. There is a growing need for tax practitioners to polish up their advocacy skills so as to be prepared to make use of the tribunal system.

Help HMRC

On a number of occasions where the writer has become involved in a tax dispute with an Officer, it is commonplace to find many months of correspondence having taken place, yet to discover that not all the facts have been presented or that they have not been presented in a clear and unambiguous manner to the Officer. The facts have not been deliberately held back. Rather, it sometimes seems that matters to do with the enquiry have been handled so quickly due to time pressures that adequate consideration is not given to some or all the issues. In other words, the Officer may not have been given a proper chance to reach the correct conclusion, because the required time and effort has not been devoted to opening the Officer's eyes to the facts and technical issues.
Clear and comprehensive presentation of the case, so that the Officer can see the wisdom of the conclusion reached in shaping the entries on the return, is essential. While it is a fact that sometimes even the clearest of entries made on a tax return and the supporting schedules often seem not to reduce the likelihood of enquiries or the duration thereof, once an enquiry has been commenced it is important to take every opportunity to spell out the position clearly so as to facilitate the Officer's understanding of the stance taken when completing the tax return.
The tax practitioner should have the courage of his convictions and give the fullest possible response to the questions during an enquiry, in the hope of nipping the matter in the bud. There are always cost issues to be considered. It may well be necessary to seek instructions from the client concerned, but if HMRC open an enquiry and the questions raised suggest that the Officer is struggling to understand the key issues, it will usually be more cost effective to take the initiative. Having answered the questions raised by the Officer, why not add a paragraph beginning with the words: 'In addition, it might help your understanding of the treatment adopted in the return if we explain that . . .'. This gives the Officer every opportunity of reaching the right conclusion at his first time of trying.
In the writer's experience of advising firms of accountants throughout the UK, a significant number of contentious cases arise because of faulty presentation of the facts due largely to a lack of thought by the practitioner or his staff, rather than a lack of confidence in the entries made. Even in enquiry cases where strong arguments exist in favour of the entries made on the return, practitioners are sometimes reluctant to be bold about their stance on certain matters, seemingly in case their boldness flags up issues which the Officer might not otherwise raise.
Presentation of the full facts is essential not only as regards good conduct of cases under enquiry, but also to prevent discovery assessment at a later date. Consideration of all the relevant facts is also essential if a proper conclusion is to be reached by the practitioner. In a case resolved last year, the practitioner and the Officer were at loggerheads over a claim for a particular tax relief. On the one hand, the Officer had jumped to a number of conclusions based upon a combination of the information provided in the return and in subsequent correspondence; while on the other hand the practitioner stated, in response to the writer's questions about the background to the claim, that he did not know the answers because 'we don't go into that level of detail when considering claims of this kind'. The reality was that all of the information known to both the practitioner and the Officer was summarised in the tax return and the subsequent correspondence, yet this information was insufficient for an objective appraiser of the facts to reach a conclusion one way or the other!
Proper presentation of the full facts soon resolved the position to the taxpayer's satisfaction, but the impression gained by the writer was that both the Officer and the practitioner had reached the conclusions they were each looking for. Objectivity had been lost along the way, if it had ever existed. The Officer was right to question the claim, but went about it the wrong way and, in the final analysis, the practitioner had based his claim on no more than a hunch that relief was due. Fortunately, he was proved right, but he could not distinguish the difference between making a valid claim and having a firm basis for doing so.

When push comes to shove

In some instances, no matter how comprehensive and clear the presentation of the information to the Officer, his analysis of the position will result in a different conclusion from that of the tax practitioner. Perhaps it is a mark of the complexity of the UK's direct tax system but, whatever the reason, the number of technical disputes with HMRC seems to be on the increase and practitioners must learn to deal with instances of stubborn resistance from HMRC, i.e. where it is felt the Officer is wrong in his approach.
All too often the tendency seems to be for the practitioner and the taxpayer to look for an easy way out. Officers know this goes on and will exploit it. Officers realise that their opposite numbers within the profession are, on the whole, unlikely to wish for a hearing to take place before a tribunal. Some Officers hold a firm view and will dismiss arguments from practitioners when they know the practitioner is labelled as being 'Commissioner shy'. It is human nature.
There will always have to be a balance between the cost of fighting a case and being willing to go before a tribunal with the tax, interest (and any penalty) implications of giving way to a highly dubious argument. However, in the writer's view if the Officer perceives the tax practitioner as someone who is unwilling to take a case to the General Commissioners, this may well impact on HMRC's conduct of that case.
Any practitioner thinking of taking a case to the Commissioners should remember that the chances are that the Officer will want the case to go to appeal even less than he does. The Officer may well be used to dealing with practitioners who advise their clients to throw in the towel. It can happen that when an Officer realises a contentious hearing is a high probability, his 'certainty of mind' melts a little. Who knows what this can produce?
A bad case is always a bad case and no one should expect to bluff the Officer into conceding where there is little or no merit. Indeed, to attempt such a course of action may well adversely affect not only the position of the taxpayer, but also that of the practitioner in the eyes of the local offices of HMRC.

Not comfortable before the Commissioners?

Any reader of this article who does not feel he could do his client's case justice before the Commissioners needs to ask why that is. Why is advocacy not a part of the study required for the chartered tax adviser's tax examinations? Is it not time that courses were readily available on advocacy skills? Do not clients have a right to expect their professional representatives to be able to cope with contentious hearings before the General or Special Commissioners? Contentious cases will not reduce in number and any tax adviser putting himself forward to act as an agent dealing with HMRC needs to think seriously in the coming years about preparing to present cases on a regular basis before tax tribunals.
HMRC have recognised that Officers do not always perform well at the Commissioners and, as a result, cases are being focused on trained Officers. At first sight, this may strengthen HMRC's arm but, in the final analysis, it means that:

• at least one fresh pair of eyes reviews the case before it goes to the General Commissioners (which may prompt a change of heart by HMRC); and
• the practitioner presenting his client's case to the tribunal will be far more informed as to the facts of the case than his opposite number presenting HMRC's case against the taxpayer.

Stand and deliver!

Practitioners who are sure of the facts of their client's case, and who have a firm grasp with the relevant statute and case law, should not be frightened of taking their client's case to appeal. It will soon be regarded as just part of the job. Clients should understand this. If not, HMRC will continue to take advantage of reticence within the tax profession. Alternatively, as any barrister will tell you, you can always call upon the service of those at the Bar to argue your client's cause.                   
Kevin Slevin FTII, ATT, TEP is a taxation consultant whose work includes tax dispute resolution. He is a member of Solomon Hare LLP, part of Smith and Williamson, and can be contacted on 0117 933 3147, e-mail: Kevin_Slevin@solomonhare.co.uk.

Issue: 4015 / Categories: Comment & Analysis