One Fifth Of UK Businesses Investigated By Taxman Collapse, Says FT

by Jason Gorringe, Tax-News.com, London

21 August 2002

A Financial Times report published on Monday has suggested that as many as one fifth of UK businesses investigated by the Inland Revenue department subsequently collapse, irrespective of guilt or innocence.

According to former Inland Revenue inspector, Chris Chadbourn, currently a tax investigation partner at Baker Tilly, this is particularly the case with back duty investigations, which can cause businesses to tie themselves up into knots:

'People panic and want to know the easy way out, but it means their credibility in the eyes of their accusers is often fatally damaged. Smaller businesses are often walked all over by the authorities,' he told the business daily.

Despite the fact that, according to National Audit Office estimates, some £7.3 billion in indirect taxes, and £2 billion in income taxes is left uncollected each year, the FT report suggests that the tax authorities are sometimes a little over-eager to reclaim unpaid taxes. Citing results obtained by international accounting firm, PricewaterhouseCoopers, the newspaper suggested that nearly 80% of VAT assessments drawn up by the tax authorities are wrong.

'Just as businesses seek to minimise their liabilities, those who keep companies on the straight and narrow will tend to maximise them. Disputes turn on delicate interpretations of statute and on what documents should be handed over, with little clear law on the extent to which accountant-client discussions are protected by legal privilege,' the FT article claimed.

John Davison, head of Baker Tilly's VAT group confirmed that this is often the case, revealing that:

'It happens more than it should. Once they [Customs and Excise] start, they want a result and they will use every means in their power to get one. The aim of advisers is to prove their figures are wrong or argue that investigators have been too aggressive and confrontational, instead of acting by their best judgement. It is a matter of negotiation.'

John Whiting, former head of the Chartered Institute of Taxation, summed up the prevailing mood among the UK's businesses:

'Sometimes you feel that the inspectors believe business people are in business in order to fiddle their tax,' he told the FT on Monday. 'Tax is not the number one priority of an overstretched business. Inspectors could do with more commercial understanding.'

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