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Case Studies: Personal Tax Compliance

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Read about various scenarios where we have helped our clients.

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    Our client had always been a high earner but due to Covid-19, had found herself furloughed

    This has made her look at her lifestyle and she has decided to resign from her current position and set up her own business. Over the years, she had made several investments in start-up companies and had been informed that some of them have either gone into administration, or they are not likely to survive going forward. There also have been similar situations in relation to investments in the last few years.
    How we helped
    We obtained from the client details of her company investments and summarised these in a spreadsheet. We discovered that some of these had been under the Enterprise Investment Scheme (EIS) and had been made to help mitigate income tax. We asked the client whether she had also claimed EIS deferral relief against capital gains and he indicated that one of the investments had been used to defer a large capital gain some years ago, but there had been no other deferrals. We also found that she had loaned money to one company and acquired some shares from another shareholder for another investment. This was recorded for future reference, as this will impact on the future tax treatment.
    We also obtained details of the companies which had failed or were likely to fail in the foreseeable future.
    Once the list was complete, we were able to ascertain the losses that were available, and whether negligible value claims could be made at this stage. For any assets that had been made under EIS, we considered whether they had been held for the prescribed period and whether there were any issues relating to the withdrawal of income tax relief. Then alongside the tax legislation, we were able to establish whether a capital loss arose and whether this could potentially be offset against income if the criteria had been met. As one failed EIS had been used to defer a capital gain which would now come back into charge, this also needed to be taken into account.
    Working with the tax returns for 2018/19 and 2019/20, together with an estimate of the client’s tax position for the current tax year, we were able to make the appropriate loss relief claims. This meant that if income tax relief was available it was claimed in the tax year in which the highest rate had been paid. The result
    The client obtained the maximum loss relief and obtained a tax repayment. Although the client had been out of time to make an income tax claim for one of the investments which had failed some three years ago, we were still in time to make a capital loss relief claim. This loss was offset against the revived capital gain.
    We now had an accurate record of all investments which we can update on an annual basis, and can revisit to ensure that the correct tax treatment is applied in the event of a sale,or the failure of an investment at the time of completing the annual tax return.
    Written: July 2020

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    The client had received a letter from HMRC to suggest that information was held about an offshore asset and asked them to check that their tax returns were complete

    The client was concerned to receive such a letter and believed his tax returns were complete. However, after giving some consideration to his tax affairs, the client realised that there was an investment which had been overlooked when completing the annual tax returns. This investment had been acquired some years ago, and instead of receiving an annual income, the client had decided to take scrip dividends instead. The client was now somewhat concerned about the information HMRC may hold and was worried about the steps that he needed to take to resolve the problem.
    How we helped
    We met with the client and looked through his tax returns. As agents, we were able to speak to HMRC who advised they had received details of foreign investments. As the client had worked abroad and held shares in their former company, we were able to provide some assurance that the UK reporting requirements had been met, and we would advise HMRC of this.
    We then reviewed the tax consequences as a result of the non-disclosure of the dividend income and explained how we could help the client make a voluntary disclosure using the HMRC Digital Disclosure Service. We also explained how this would work, and went through the reasons with him as to why the error had occurred as this would impact on the number of years to be included.
    Next, we notified HMRC of the intention to disclose which gave us 90 days to make the disclosure and for the client to pay the tax due. We agreed with the client the number of years to be included in the disclosure and about accounting for the income on tax return(s) which were still in date. We agreed with the client the rate of penalty based on the reasons for non-disclosure and calculated the tax and the interest which fell due. We then went through the form with the client to ensure that the disclosure was right and complete, and he understood the consequences of this declaration forming a legally binding contract between them and HMRC.
    The outcome
    The client was now able to sleep properly at night, as we had helped them deal with this threatening situation. We had explained the process and agreed the basis of the disclosure, so that he was able to pay a fair penalty and the correct amount of tax and interest.
    This gave the client assurance and as a result, he consulted with us on a regular basis in relation to tax planning and tax compliance matters.
    Written: July 2020

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