Facing a Tax Investigation? Don’t Bury Your Head in the Sand!

If you are facing an investigation by the tax authorities, your very first step should be to seek professional advice. One taxpayer who sadly chose not to take that course, instead burying his head in the sand, narrowly escaped a six-figure back-tax bill.

Following an enquiry, HM Revenue and Customs (HMRC) formed the view that the man had been trading in second-hand cars for years without declaring his profits for Income Tax purposes. Assessments were raised in respect of a 12-year period and, after late payment penalties were added, his total bill came to £342,943.

In challenging the assessments, the man argued that he had had no taxable income during the relevant period, being in poor health and living on benefits. He had sought no professional assistance and had generally behaved in an ostrich-like manner, being less than cooperative in providing information to HMRC.

In upholding his appeal, the First-tier Tribunal (FTT) found that HMRC had failed to establish that he was engaged in the motor trade. Even if he was, the estimates of his profits, far from being based on best judgment, had been plucked from the air and were wild, extravagant and unreasonable.

The FTT noted that the man had been his own worst enemy in being obstructive and in seeking to argue his case without expert assistance, despite lacking the skill, ability and possibly the understanding needed to do so effectively. The assessments and penalties were nevertheless overturned.