The proverbial advice is as sound in tax as in any other area.
Our longstanding and unequivocal advice is that if HMRC challenge the accuracy of your tax returns, the only sensible thing to do is engage with them constructively.
If you are confident that their challenge is baseless (and this is sometimes the case – even heavyweight serious fraud suspicions have on occasion turned out to be unfounded), the purpose of the engagement is to help HMRC by correcting their misapprehension.
If you recognise the possibility that the challenge may not be entirely without merit, the purpose of the engagement is to agree (and minimise) the tax consequences of any irregularities as quickly and painlessly (in terms of both stress and financial cost) as possible. Resolving to defend the indefensible and to fight unwinnable battles is not only pointless but also expensive.
And so to Milasenco v HMRC [2023] UKFTT 620 (TC).
Imagine that you have already been subjected to an enquiry in 2014 and have accepted assessments on your online trading for the four years to April 2013. Imagine that over the following few years your bank account shows over £125,000 deposited from PayPal and several thousand pounds from Amazon, many transactions with mobile phone suppliers and multiple payments to delivery companies; and that your various online platforms show hundreds of feedback entries.
Would you think it wise not only to fail to declare any online trading profit in your returns for those years but positively to tell HMRC that you should be taken out of self-assessment because you had no trading income? And if you did that and you were subjected to enquiry (again) by HMRC would you insist that you weren’t trading, to the extent of taking your appeal to the First-tier Tribunal?
Mr Milasenco did. He lost the case, of course: what other outcome could there possibly have been? He also suffered penalties of 49% of the tax assessed which, since the maximum possible was 70% was, as the Tribunal remarked with some understatement, ‘bordering on the generous’.
Here’s our free advice: (1) Make accurate tax returns (2) If your returns are challenged, don’t bury your head in the sand: talk to us (3) If you’re in a hole…
For more information, please get in touch with your usual BKL contact or use our enquiry form.