T35 - Dusting off old files

Tax offices around the country are about to dust off their old files in an attempt to collect back tax. What implications could this have for you?

Old files. In response to the National Audit Office’s recent criticism of the Taxman, taxpayers who thought their files had long been closed are receiving new tax demands, sometimes for thousands of pounds. Some have reported receiving demands for tax and accumulated interest going back as far as 1974! Can the Taxman do this?

Appeal system. Before 1996, tax assessments had to be issued by the Taxman before he could collect tax on business profits, property income and capital gains. In the absence of accounts he issued estimated assessments which taxpayers appealed against. However, along came self-assessment, a large number of tax office reorganisations and a backlog of old appeals built up. Huge lists of these unsettled appeals have gathered dust in tax office cupboards until now. After all this time the Taxman is now clearing his lists and coming after that postponed tax.

Tip 1. If you don’t have any (pre self-assessment) unsettled appeals don’t worry.

Tip 2. He has no legal entitlement to the postponed tax still under appeal (at least not without settling the appeals first). If you can’t supply accounts because you destroyed the records after six years (as you are entitled to do), the Taxman can only try and persuade you to agree some figures, or failing that to ask a tax tribunal to decide. If you receive a demand, challenge the Taxman to prove that it is legally collectible - he’ll find this impossible in most cases.

Tax tribunal. If this goes before a tax tribunal it will ask the Taxman for proof that the assessment was properly issued and appealed (otherwise it has no jurisdiction) - and he just may have destroyed his paper records too! At worst the tribunal will confirm the estimate and give you a legally collectible tax bill, with interest. It’s more likely however, that it will look at the previous year’s agreed profit, invite your views and come to a reasonable decision. Best of all, they would severely reprimand the Taxman for his delay in pursuing such appeals and discharge the assessments completely!

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This web-site was last updated on 13/06/2008

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