11 Dirty Tricks

From the bottom to the top, from the small to the big, lying is habitual and endemic in the tax office.

Let’s start big: when HMRC lost bank and personal details of 25 million customers in November 2007 they blamed the loss on a junior member of staff at their Washington office. “Who?” asked The Guardian, and “are they still in work?”

The answers seemed complex and contradictory. Some statements said that the employee was still in work, some said they were fired and some simply said, “It’s irrelevant.”The Daily Mail detected this porky and ran the headline, “Bungling junior official who lost benefits discs ‘is being made a scapegoat’.

A few days later the truth came out. It became clear that the discs had actually been lost by a career civil servant and the data hadn’t been edited as it should have because of cost-cutting. The Telegraph said, there had been a cover-up. Which is a nice way of saying: HMRC has been telling us a pack of lies.

At the other end of the scale, when HMRC opens up a small Self Assessment investigation it’s standard to go through all the expenses claimed and say, “You can’t have that!” and “You need to make a deduction for personal use!” see point six in what HMRC don’t want you to know.

The idea of reducing expenses is to increase levels of tax. HMRC say, “We want to make sure you do not pay too much tax or too little.” But this is a lie – quite simply investigators are told that they need to get results – that’s what they set out to do.

In my case expenses were slashed from £5,000 to £1,000 in a heartbeat. After six months of negotiation we settled on £3,000. So was it not deceitful to disallow so many expenses when they were valid? Was it not a lie? No, the HMRC line is that they can’t be wrong, they will simply say, “I saw X and I didn’t think it was valid, you explained why it was and I accepted that.”

The result of this policy is that you can spend - as I did - nine months arguing over something that is worth only a few pounds in tax. It’s an expensive and exasperating process where you are forced to dig your heels in just to hold on to what you have. Most people – particularly those who are unrepresented – give up and throw in the towel – and that (as you might imagine) suits HMRC down to the ground.

The interview is a fabulous opportunity for HMRC to start wearing you down. Psychologically they hold all the cards: you’ll be invited into their office where there will be two investigators who will know the ropes and the games. You will know nothing and if you are (god help you) unrepresented you are in for a grim time.

HMRC love meetings and their enquiries manual makes no bones about how important they think they are, “Meetings play a vital part in full enquiries under SA [Self Assessment] and will often be appropriate in aspect enquiries of substance.”

HMRC use the same open questioning techniques as the police but unlike a formal arrest you will not receive any kind of warning that what you say will later be used against you. Another important difference is that your ordeal will not be recorded – so if push comes to shove (and it will) it is going to be your word against theirs about what was said.

Phil Berwick, director of tax investigations atTenon said that in a recent case an unrepresented tax payer went to a meeting that ended up lasting five hours, “The individual was so upset and aggrieved at being subjected to this ordeal that they thought it would be easier to agree with the inspector [rather] than resist further.”

In the absence of hard evidence HMRC will put the pressure on and then try to build a case against you based on your recorded income and estimates of your expenditure. Ah-ha! Now you can see why HMRC think meetings are so important!

They ask if you go out for meals – how often? And do you like a drink? Do you buy drinks for friends? And do you smoke – if so how many? These questions are all framed in a friendly chat but everything is being stacked up to use against you later.

It’s easy to find yourself saying, “Yes, actually I am a bit of a bon viveur  who likes five pints a night and a chaser at the end – and friends? Well of course, a whole gang! And do I get the drinks in? I should think so, I’m a very generous sort you know!”

All that information is being jotted down and will then be rounded up and scaled back over five years.

HMRC will say, “You earn ‘X’ we believe your lifestyle costs ‘Y’ so we are going to tax you on the difference.” Oh and then they will add penalties and interest too.

HMRC are well within their legal rights to do this.

About a week after the interview you will be posted the HMRC interview notes to sign. These will have shockingly little resemblance to what was actually said at the meeting.

Raise this issue and they will say, “The notes are not meant to be verbatim – I need you to sign and return them.”

If you refuse to put your signature to the notes (you are under no legal obligation to sign) you will be asked why you are unhappy with them. Small changes will then be made and then new notes will come.

See schedule item 5 for a real example of this.

Former Revenue investigator and now consultant to HMRC Simon Sweetman says, “I have worked with Inspectors who thought it a victory if the taxpayer cried…”

Nice.

What you need to know:

• The tax payer is in no way legally obliged to go to an interview and – in the opinion of many accountants – it’s an exercise solely for the benefit of HMRC. But – and here is the rub – if you refuse to attend the interview this can be considered ‘non co-operation’ by HMRC and so may result in a fine.

• If you decide to attend an interview you can ask for a pre-meeting agenda. If the investigators go off agenda you can refuse to answer the questions. If the inspector is foolish enough to give you an agenda so detailed it lists questions you can answer them and say, “I now see no reason for an interview.”

• You can have the interview at the location of your choice, choose to have it on neutral territory – if you have an accountant ask to use his office. Don’t let the tax inspector visit your workplace or home – it will just lead to more fishing.

• You can record the interview – so an accurate record of what has been said is kept.

• As a rule you should have as have as little contact with HMRC as humanly possible. HMRC take away peoples’ cars and houses, marriages break up under the stress and fathers lose contact with their kids – all because they say the wrong thing at the interview.

The final decisions are not the final decisions, the final documents are not the final documents, the last figures are not the last figures. This is Hell.

Let’s say the investigation is officially over and HMRC send you closure notices which state “I have now completed my enquiry into your Tax Return for the year ended…” – sounds pretty final doesn’t it? But it’s not.

In the event you choose to appeal HMRC’s calculations they may well choose to re-evaluate the entire case and in that process the figures will be reinterpreted and more expenses will be disallowed, the result is that your tax bill could well triple!

The new figures come through the door with a thud and a small ream of explanation. But the real message in that ream could be put down in one sentence on one side of one page of A4: “If you are going to fuck with us we are going to fuck with you.”

Yes, that’s what happens when you start to use your right to appeal – and it’s common practice.

As you leave the interview you may be handed a questionnaire asking for details about your day-to-day lifestyle and expenditure.

The tone will be very casual, but be warned, in the absence of any evidence these pieces of paper will become the basis of a powerful tool for calculating your annual expenditure.

Later in the investigation HMRC will say: “We’ve looked at the questionnaire, we calculate it costs you X to have your lifestyle, you earn Y therefore we think you are not declaring Z and even though we have no evidence we are going to tax you on Z.”

What you need to know:

HMRC will put pressure on you to complete the questionnaire.

You are under no obligation to fill it out.

This questionnaire is entirely for the benefit of HMRC

Now we are entering Kafka country! This practice is so bizarre and nasty it’s better to give you some real examples – both happened to me.

The first was with investigator Steve Coomber, here is the schedule paragraph item 11.

25 April 2006 – S Coomber wrote, “What I now require is factual evidence [for the expenses claimed and that you are still in possession of said items]” On 29 April 2006 – NM wrote, “I’m in possession of many of the items listed as expenses… if you could tell [me] what items you are interested in and what evidence you need… I will do my best to provide you with what you require.” No reply was received by NM.

I have since been accused of not providing evidence that has been asked for!

The second two example is a conversation with J Lamper: The audio clip was recorded on 26 May 2006. It is me and J Lamper talking about evidence.

I say, “What sort of evidence would you find acceptable? I’ve been repeatedly asked for evidence… and I repeatedly say what evidence do you need? ”

Chartered Accountant Jon Lunn says, “Asking for that kind of documentation, whilst not specifying what they mean by ‘documentation’ is an ongoing trick, deployed by the Revenue Inspector, allowing closure notices to be issued on the grounds of ‘non customer co-operation’. Penalties follow and so do the Bailiffs soon after that.” Read his blog here.

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What you need to know:

Techniques like this are unacceptable. Any inspector exposed using tricks like this should be suspended immediately pending a full investigation.

HMRC say, “We know that dealing with our investigation can cost you time and money, so we will make sure that our enquiries are reasonable and necessary to your case. We will close our investigation as soon as we are satisfied that your tax affairs are in order or settled.”

For the belligerent investigator this is meaningless: “as soon as we are satisfied” is a get-out that makes the whole paragraph meaningless.

The belligerent investigator knows represented tax payers are hit in the pocket every time their accountant answers a letter, picks up the telephone or goes into a meeting – £100 an hour is a typical fee.

So after a year of investigation the HMRC officer calls a meeting and presents an unfair settlement figure. The tax payer is then stuck between a rock and a hard place: they either accept the unfair figure or they will risk the case dragging on much longer and so costing a huge amount in professional fees – often more than the settlement figure offered.

This is blackmail and it’s a really common HMRC tactic.

The Consultative Committee of Accountancy Bodies have brought this practice to the attention of the Revenue.

I know – it sounds mad – but HMRC use these powers every day: let’s say that you are a self employed plumber and you declare 15K a year.

HMRC may look at your lifestyle (the car you run and mortgage you pay) and think your out-goings are suspiciously high.

HMRC consider trades – like plumbing – high risk and they use the retail price index figures to calculate estimates for income.

They can turn around and say, we think a plumber of your age and ability should be earning an average of £200 per day. We are going to assume that you have been earning that amount and not declaring it.

HMRC will then tax the plumber (scaling the figures back over five years) and adding high penalties for non-disclosure of income.

The burden of proof is in the taxpayer, but it’s very difficult prove a negative. HMRC simply send out a bill for a huge figure.

The callous use of these powers causes bankruptcy, repossession and in some tragic cases suicide.

While members of HMRC are reluctant to give you their email addresses they are extremely keen to get you talking on the phone! All their letters contain a direct phone number and they often say, “If you have any questions, just give us a call…”

Inspectors are professional interviewers and they will make these phone calls seem like a friendly chat, but they are not friendly and they are not chatting. They are asking a series of leading questions designed to get a result for their investigation.

Phil Berwick, director of tax investigations at Tenon warns against telephone calls for taxpayers regardless of whether they are represented or not, “Even the most innocuous call… to an inspector can damage the progress of an enquiry. An inspector may use the opportunity to quiz the taxpayer in a way that [an] agent would never allow.”

HMRC officers make notes of all telephone conversations and those notes are weighted in favour of the investigating officer. If – later – you choose to appeal these notes will be produced as evidence: “On X day at X time you said, X, Y and Z now why are you saying something different?”

If you have not recorded the conversation or made contemporaneous notes it will be your word against theirs that what is written down is not a correct record of what was said.

Tax inspectors – like all of us – often see what they want to see and hear what they want to hear – but unlike the rest of us they have the power to send out some very large tax demands.

The complaints team evaluate the weaknesses and strengths of your case; how well informed are you? How good is your representation? Are you concerned about the cost of your accountant? Will you negotiate a settlement? Are you beginning to feel the pressure? Might you break soon?

Any information they glean is noted down and handed straight to the investigating officer. They are – in short – an arm of the investigation team.

Click here to read real notes from the complaints team.

This practice was mentioned in point 10 of “What HMRC don’t want you to know” but it’s such a big dirty one I think the practice should be mentioned here too.

The unrepresented taxpayer is led through months or even years of protracted investigation and is then presented with a ‘final figure’ which you are asked to agree to. This figure may appear to be relatively low, let’s say £3k.

And you think, “Fuck this for a game of soldiers! There is no way 3k is accurate – but I’m just going to write a cheque and get these bastards off my back.”

Once you’ve agreed to the 3k the real cost will slowly become clear. The 3k is scaled back over five years (making it 15k) then there is interest (increasing the figure to at least 20k) and then penalties – HMRC will go for about 60 percent – though it’s unlikely they are entitled to go for such a high figure.

So – and this is my point – what starts out as £3k soon becomes £32k. And once you’ve admitted liability for the 3k there is very little anyone can do.

So here’s the deal – the investigation is coming to what you think will be the end. HMRC sends the closing documents saying the investigation is closed and summarising both their findings and the tax they consider due.

You have the right to appeal these figures, but even if the investigating officer knows that you are going to appeal and you sign the appeal requests and send them back in straight away – you will still receive a very official looking final bill.

HMRC say, “Well sometimes documents cross in the post.” but the real reason is that receiving a large tax bill is a deeply distressing experience and some people – when faced with that official looking document – just give up and reach for their cheque book.

I’ve said it before and I’ll say it again: the bullying and underhand tactics of HMRC cost innocent people their businesses, their cars, their homes and their marriages. It’s an evil system that takes advantage of people who cannot afford to be represented.

The final decisions are not the final decisions, the final documents are not the final documents, the last figures are not the last figures. This is Hell.

Let’s say the investigation is officially over and HMRC send you closure notices which state “I have now completed my enquiry into your Tax Return for the year ended…” – sounds pretty final doesn’t it? But it’s not.

In the event you choose to appeal HMRC’s calculations they may well choose to re-evaluate the entire case and in that process the figures will be reinterpreted and more expenses will be disallowed, the result is that your tax bill could well triple!

The new figures come through the door with a thud and a small ream of explanation. But the real message in that ream could be put down in one sentence on one side of one page of A4: “If you are going to fuck with us we are going to fuck with you.”

Yes, that’s what happens when you start to use your right to appeal – and it’s common practice.