Incorrect inquiry?

06 April 2006

Issue: 4052 / Categories: Forum & Feedback , IR35

A limited company client had an employer compliance review in November 2001 which, as well as covering the 'normal' areas, expanded to cover IR35 for the sole director/employee. The Officer attending found errors both in the operation of PAYE and the completion of P11Ds for the tax years 1997-98 to 2000-01.

HMRC backed down over the IR35 issue and wrote to us in November 2004 saying 'As there are no further issues outstanding the review is now complete'. No demands were made for the tax underpaid as a result of the errors (which included mileage claims and beneficial loans). In September 2004 a TMA 1970 s 9A inquiry was started into the director's 2003 tax return. In February 2005 this was extended under the discovery provisions to include 1999-00 2000-01 and 2001-02.
As one of the duties of the officer attending an employer compliance review is to compare the employer's return with the director's self assessment return (Employers Compliance Handbook at 17040) my argument is that Langham v Veltema cannot apply as HMRC were aware of the errors within the inquiry window for 1999-00 and 2000-01. They refuse to accept this.
HMRC's recent statement of practice...

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