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Topic: Dealing with tax investigations

checklist for challenging an HMRC business economics exercise
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Checklist for challenging an HMRC business economics exercise

Checklist for challenging an HMRC business
economics exercise

In the pursuit of tax collection targets there is now a much greater willingness by HMRC to displace the profits shown by your accounts with an estimate based on a simple business economics exercise. Our checklist can help you identify flaws in HMRC’s calculations.

Missing income

A typical example of a business economics exercise would be for HMRC to use a mark-up of purchases to selling price and construct an anticipated sales figure. The next stage is to compare that with the sales shown in the accounts. The difference is, in his view, missing income! The scope for inaccuracies in such an exercise is vast so HMRC’s calculations need to be attacked, not only in terms of the detailed figures employed, but also of the overall credibility of the ratios used, e.g. gross profit percentage.

Attacking HMRC’s argument

Firstly, you have to get hold of the tax inspector’s calculations. Write and say that you recognise they have done a lot of work and research to arrive at their reconstruction results. However, could they kindly provide details of their calculations? From here you can start to pick holes in their argument line by line, not accepting any assumption. Use our Checklist for Challenging an HMRC Business Economics Exercise (or reconstruction as it is sometimes known) to help you do this.


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