15 May 2018

Kapoor: don’t ask if you don’t want to know

Publications

Sometimes in life, if you don’t want to know the answer (or, worse, if you are going to ignore it) it’s better not to ask the question.

In particular, it’s wise to follow that rule in tax matters.

Mr Kapoor was an Indian national who was working in the UK between 2014 and 2016, apparently on secondment from his employer in Delhi.  He incurred expenses while living in the UK including rent, council tax, and household and personal expenses.  On telephoning HMRC to obtain a tax reference so that he could make a tax return and claim relief for those expenses, he was told that none of the costs were tax-deductible and that, as his income was less than £100,000, HMRC wouldn’t be asking for a tax return from him.

He later found that his income was over £100,000; he notified HMRC who issued a tax return in the normal way.  And, despite what he had been told about the expenses, he put them down as deductions anyway.

Predictably, HMRC took a dim view of that.  They enquired into his return, disallowed the expenses and handed Mr Kapoor a bill for some £12,000 of tax.  They also asserted that Mr Kapoor’s inaccuracy was “deliberate” and charged him a penalty of £6,500 (albeit that it was reduced to some £4,300 on internal review).

Mr Kapoor appealed. It was an innocent mistake. He was unfamiliar with the system. It was the practice in India to include all expenditure on the tax return and leave the revenue authorities to sort it out.

The Tribunal’s sympathy was limited.  The practice in India may have been as was claimed.  But the fact was that Mr Kapoor had specifically asked the question of HMRC and he must have known that the expenses weren’t deductible.  He had deliberately included a deduction for expenses knowing that he was not entitled to claim relief and had sent HMRC a document containing a deliberate inaccuracy.  From that the penalty followed.

It is certainly unwise for anyone having sought HMRC’s opinion to ignore it in quite so cavalier a manner.  Unless you are pretty confident that HMRC are wrong, of course: and there is no suggestion that Mr Kapoor thought that in this case.

But should he have done?

Although the knee-jerk reaction is that a taxpayer isn’t entitled to tax relief for rent or household costs, relief is available in certain circumstances for “travel expenses” (which is regarded as including costs of accommodation and subsistence).  Broadly, relief is available for the costs of being seconded to a “temporary workplace” for a period that is expected to be (and turns out to be) less than two years before returning to the permanent workplace.  Usually one encounters this in the context of secondments within the UK: but in principle the same rules can apply to “outward” or “inward” secondments from or to the UK.

Of course, it’s possible that Mr Kapoor’s working in the UK didn’t qualify him for any element of relief under these rules, but one wonders whether the possibility was fully considered in the course either of the initial advice from the helpline or the subsequent enquiry.  Sometimes asking the right question can be important in securing the right answer.

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