Paul Malin Consultancy

Residency position on tax returns Another nudge letter from HMRC possibly to your clients just before Christmas and the peak of the tax return season. This time HMRC are wanting taxpayers to review their residency position before they submit their tax returns, or to undertake a “repair” if they have already done so. Applying the Statutory Residence Test each year can be tricky as it applies to income tax, capital gains tax, inheritance tax (and not forgetting corporation tax). In summary, HMRC may consider a person to be resident in the UK and taxable on their worldwide income if they spend 183 days or more in the UK but this can be triggered for some if they spend less than 183 days. Interest and penalties can apply to any tax paid late. Ignore HMRC at your peril (and your client’s peril). If you need any assistance, please contact me at paul@pmc.tax or call me on 07979 313 010

Why is HMRC so interested in your client’s hobbies? When we do things that we enjoy, we can often get submerged with everything about it and lose sight of what it is and where we are going with it. If it is all work related and fully disclosed and taxed, then it may not be of any concern or interest to HMRC. But if it is done outside of work then that can be a different matter. For example... One client renovated classic cars as a form of relaxation. They were exhibited and sold nationally, and he was recognised for the quality of his workmanship. HMRC also recognised him at a show and an investigation followed. Whilst the expenditure was recorded, the client forgot to record any of the income! Do you have clients with hobbies that are not properly declared to HMRC? If so, get in touch with me and I can help you to unravel and rectify the situation and potentially halve your client’s penalties.

HMRC don't horse around! All too often I see cases where taxpayers have hobbies that make money or where costs of the hobbies are put ‘through the company’s books' and are not properly declared to HMRC. But your client’s should BEWARE! HMRC can and will find out and will investigate! One such example is below: One client throught that seeing the company’s logo on a new horsebox was good for business. Whilst the logo only cost a couple of hundred pounds, the horsebox cost £200,000, plus VAT and it all goes through the company. The client says that it all for business purposes, the asset, is used as a talking point, a form of advertising. Really? The horsebox was very much the state of the art and included sleeping accommodation and a rest area. The hotel owner used the rest area to interview potential staff to work in the UK hotels supposedly. All the costs were claimed as a deduction against taxable profits, there was no income. You might think this situations is farfetched. Wrong. I’ve seen multiple instances where taxpayers have been accused of fraud. Yes, fraud. These tax irregularities are capable of be rectified. Timing is important. If a taxpayer goes to HMRC and not the other way around, penalties can be halved. Do you have clients with hobbies that are not properly declared to HMRC? If so, get in touch with me and I can help you to unravel and rectify the situation and potentially halve your client’s penalties.

DO YOUR CLIENTS HAVE ASSETS IN OTHER COUNTRIES? If your clients have assets in other countries, it's worth understanding what the Common Reporting Standard (CRS) is and how HMRC exchange information with other tax authorities across the globe.

What does HMRC mean by “keeping proper books and records”? Most advisers will respond with “everything the accounting software package has” including wages. Those who are more old school may think “cash book, sales day book etc.”. The problem What if there are no “books and records” that have been kept other than bank statements? My client not only manufactured clothes for high street stores but also sold “the excess” to market stall traders. But he had no idea how many garments of each line he had sold to market stall traders, but he did know the price of each garment. The solution By me talking in depth to the client, asking the right questions and thinking outside the box. The client said that each and every garment had a plastic covering like you have on any clothing you retrieve from the dry cleaners. So as the covers came in bulk on a roll, it was quite easy to calculate the throughput of total garments made based on the covers used. Each roll of material could make so many garments in total. We knew how many had been sold to the high street shops and distributors, so the balance was sold to market stall traders. Also, an agreed amount was adjusted to reflect spoilage. The outcome HMRC were shown around the workshop to put everything in perspective and the calculations presented to them. The outcome was that HMRC had no alternative calculation and accepted our figures without alteration. One happy client.

Tax investigations can take a long time to conclude with HMRC depending on the complexity. When I work with a client on their tax investigation, I'm there for the long-term to help them every step of the way.

DO YOUR CLIENTS HAVE ASSETS IN OTHER COUNTRIES? If your clients have assets in other countries, it's worth understanding what the Common Reporting Standard (CRS) is and how HMRC exchange information with other tax authorities across the globe.

What does HMRC mean by “keeping proper books and records”? Most advisers will respond with “everything the accounting software package has” including wages. Those who are more old school may think “cash book, sales day book etc.”. The problem What if there are no “books and records” that have been kept other than bank statements? My client not only manufactured clothes for high street stores but also sold “the excess” to market stall traders. But he had no idea how many garments of each line he had sold to market stall traders, but he did know the price of each garment. The solution By me talking in depth to the client, asking the right questions and thinking outside the box. The client said that each and every garment had a plastic covering like you have on any clothing you retrieve from the dry cleaners. So as the covers came in bulk on a roll, it was quite easy to calculate the throughput of total garments made based on the covers used. Each roll of material could make so many garments in total. We knew how many had been sold to the high street shops and distributors, so the balance was sold to market stall traders. Also, an agreed amount was adjusted to reflect spoilage. The outcome HMRC were shown around the workshop to put everything in perspective and the calculations presented to them. The outcome was that HMRC had no alternative calculation and accepted our figures without alteration. One happy client.

Why do sheep have coloured markings on them? Over the years I have represented all kinds of taxpayer. When I was invited to meet one Lord of the Manor, I had never heard of tupping before or realised that coloured sheep marking would form the basis of the outcome of a tax investigation. The problem HMRC had chosen to investigate his lordship’s accounts of the various farming activities. The Manor consisted of a number of farms for both livestock and arable farming. HMRC had already lost the battle on arable farming when I was able to make a late claim for an increased loss on activities due to a mathematical error. One nil. But when we turned to looking at the livestock and in particular sheep, “the numbers” on the overall headcount of sheep had fallen sharply over the 3 years and just looked odd. The income from the sale of sheep was level. I was advised that “tupping was at its highest level ever” (but I didn’t understand what this meant!). So where had all the sheep gone? The solution By asking the right questions and delving deeper, I began to understand that the sheep are left to graze over acres of land and the coloured sheep markings identify their ultimate owner. Maybe the sheep had simply got lost? HMRC had referred to an acceptable level of lost sheep through rustling and this was allowed for in their calculations. But what was more relevant was the fact that this grazing took place right door to an army training ground where they used live weapons during training exercises. So, what happens to squaddies when they are left to their own devices? How do they overcome the boredom, the cold and wet not forgetting their hunger. Simple, shooting sheep overcame the boredom! The bright coloured markings make them an easy target. Their wool was then used to keep the squaddies dry and warm and the meat kept them fed. A simple explanation. The outcome Once, I’d asked the right questions, gathered the answers, I was able to explain to HMRC why the numbers looked odd. Headcount fell by more than this when added to market day and auction sales that was also added into the numbers. Needless to say, it was all a bit of a learning exercise for me and HMRC. A conclusion to the investigation was achieved for the client that saved the client thousands of pounds in tax. Two nil. And tupping? Well nature has its own way of bringing lambs into this world shall we say. The moral of this story is that it’s important when handling a tax investigation that the right questions are asked to both the client and HMRC and that all the relevant facts are presented to HMRC in the right way. My 35 years of experience meeting a wide variety of people across many sectors, solving their problems, and thinking outside of the box allow me to often get a better outcome for the client. After all, not all the answers can be found in a textbook!

The four-year anniversary of Paul Malin Consultancy has just passed and it has been quite a journey.   Despite having survived Covid without a sniff thankfully, there have been some other notable happenings along the road.   Firstly, writing off 2 laptops – thankfully they were backed up. Secondly, far less travelling by car, train and plane. And yet I deeply missed meeting people. But we have the internet, TEAMs and Zoom and I still speak to clients and advisors regularly. Thirdly, not sure there was a third thing.   Its not the first time I have run a successful business. If you want to stay in business, you have to learn from your mistakes. And quickly.   In my opinion, money isn’t everything, people are. Money allows you to fulfil your ambitions and dreams. But what is important to me is that I still love what I do and get so much satisfaction from helping clients get a better outcome from tax investigations. How has your journey been so far? What are your future ambitions and dreams?