You may be aware of a story which was published yesterday on the This is Money website, regarding a small Caribbean cafe in North London which was being pursued by HMRC for over £500,000.
The business, Tanya’s Takeaway, was opened in 1988 by Mrs Icilda Newell, and although it has not made much profit throughout the years, has proved to be a popular eatery for the residents nearby. In previous years, Mrs Newell has been told by HMRC that her record keeping was correct, and she made sure she was a diligent bookkeeper, keeping a record of all transactions made by the business.
In 2009, HMRC took a different view on the business. Mrs Newell and her husband were called into an interview with a tax inspector, who had become suspicious about money going in and out of the couple’s bank account, which often fluctuated, wildly in some months. The inspector accused the Newell’s of hiding the true profits of the cafe, and estimated that the business was making £54,000 in undeclared profits a year. In total, they were accused of hiding £700,000 over a 16 year period, and ordered to pay £210,000 in tax, £107,000 in penalties, plus overall interest.
Mr Newell tried to explain that the reasons his personal affairs, including the couple’s bank account, were far from transparent, was because of his love for gambling. To the outsider this may sound an unlikely excuse, but Mr. Newell had a lifelong interest in horse racing. He had held shares in two horses, was friends with jockeys, trainers and stable lads and made frequent visits to race meetings.
He had also worked for a bookmaker. His bets and winnings, often totaling several thousand pounds, and that of a friend whom he went to the races with, were often pooled together in this account.
Crucial to the story however, is that his claims were backed up by records from the bookmaker he used. Despite all this, HMRC still did not believe the couple’s story, so the Newells appealed the decision and the row dragged on, with HMRC constantly demanding payment from the couple.
In May last year the couple handed over management of the cafe. In November, they were finally awarded a tribunal before a judge. On the first day, having shown no previous signs of yielding, HMRC suddenly dropped its demand for the first ten years of tax.
On the second day, the judge found in their favour. The relieved Newells burst into tears. In his ruling, Judge Roger Berner said HMRC was wrong to demand the extra tax. He described Mrs. Newell as ‘transparently honest’ and her submissions as ‘compelling’.
The couple, who employed a forensic accountant to help them fight their corner, now faces another battle with the Revenue for compensation.
While this story may sound out of the ordinary, last year HMRC raked in £565million from tax investigations into small businesses. Experts say increasingly special tactics are being used to catch businesses who are not declaring their correct incomes. These tactics were originally designed to tackle serious fraudsters, but HMRC is understood to be using them to quickly claw money back from small businesses.
The above story is just one example of why many accountants are now advising businesses to take out a fee protection service, to balance the risk of an HMRC enquiry. At Sibbalds we will defend you should you ever receive an enquiry from HMRC and we have many years of experience helping clients to defend their case. To cover our fees for defending you during an enquiry, we offer a Tax Enquiry Protection Service which covers all aspects of tax enquiries including HMRC visits. The annual subscription to this also gives you access to Employment Law and Health and Safety advice lines. For a small fee, you will receive peace of mind that you will not have substantial accountancy fees like the Newell’s.
Anybody who would like to find out more about our fee protection service should please call 01332 242257 or email firstname.lastname@example.org.
*Image sourced from Flickr.