YOU AND THE REVENUE
Human rights
Taxpayers have had a chequered history taking on HM Revenue & Customs (HMRC) under the Human Rights Act. One could be forgiven for thinking, cynically, that HMRC can ride roughshod over the legislation by saying it needs to protect tax revenues.
But the following true story illustrates one way in which mentioning human rights could score you a point or two in your battle against the forces of evil – sorry, we meant the taxman.
Once upon a time, there was a family-run business. The prime movers in the business were a father and two sons, who were all directors. Their jobs took them all over the country.
In order to help them with some cruelly early starts (believe it or not, 5 o’clock does come in the morning!) they took, on occasions, the company ‘pool cars’ home so that they could leave for a remote site without needing to come into the company office first.
Pool cars, as most people know, can be provided to employees and directors without a tax charge (personally, we think the pool car exemption is claimed far more often than it is actually due, but that’s another matter). The years passed very happily in this way, with the directors having the predominant (but not exclusive) use of some very nice 4x4s.
But little did the directors know that the storm clouds were gathering round their happy little company. Late at night, and early in the morning, sinister figures were to be seen creeping around the vicinity of the directors’ homes, keeping to the shadows and with the lapels of their Inspector Columbo-style raincoats turned up, trilby hats forward over their eyes. In the silence of the evening, or the early morning, the ominous click of camera shutters might have been heard (but wasn’t, because the unsuspecting directors were relaxing in the bosoms of their respective families).
Then came what they thought was just another routine visit from the Gestapo – sorry, PAYE Inspector. After having been through the company’s payroll records, the visiting officer dropped his bombshell: he had reason to believe that the directors were taking pool cars home at night, which meant they were not, in reality, pool cars. Only in very exceptional circumstances, the Inspector said, could pool cars be taken home without turning them into a tax benefit.
The directors blustered, but were inclined just to pay the man a little money to go away.
Unfortunately, it wasn’t a little. It was a lot. One of the things HMRC trains these inspectors in (and it trains them well) is a process known as ‘extrapolation’. This is a long word for what’s a simple enough exercise: extrapolation assumes that whatever is wrong with the company’s books has been going on for the last six years, so an Inspector multiplies the extra tax by six, then adds interest going back six years and some pretty swingeing penalties.
So, what seems like a trivial discovery by a PAYE Inspector can turn into Hiroshima.
This is exactly what happened with our nice little family-run business. It was suddenly faced with a demand for the immediate payment of about a quarter of a million pounds. Yes, a quarter of a million.
The directors argued and argued to no avail. Then they called in their accountant, and he argued and argued too, but equally in vain.
It looked as though the case was bound to go to a formal appeal, but a tax expert, when asked, had to admit that the company’s chances were by no means good. Then the tax expert had an idea. This isn’t surprising, because that’s what tax experts are paid for, but in this case it turned out to be a very good idea indeed.
He wrote the taxman a nice letter, talking about the calculations and the rules about pool cars, and dropped a seemingly casual query in at the end.
The letter finished with something like “...oh and, by the way, you couldn’t just let me have a copy of your internal records, demonstrating your compliance with human rights legislation in your surveillance activities round the directors’ homes? It’s just a formality for my file, you understand.”
This innocent request was met with complete silence. Instead, the taxman came back with all guns blazing on the questions that were in dispute about pool cars and the way the quarter of a million had been calculated. Not a word about that tedious and irritating subject of human rights.
The tax expert was quietly persistent. “Thanks ever so much for that, old chap, but you’ve overlooked my human rights point. Awfully obliged if you’d just drop us a line on that to put it to bed.”
But answer came there none. Unless you count it as an answer that, about six months later, the Tax Office phoned the accountant’s office and agreed to settle, by way of a compromise, to the sum of £12,000.
And so the business, which would have been closed down by the original demand, was able to carry on, and everyone lived happily ever after.