Case Studies
Separate Businesses for VAT?
HMRC will pursue, often quite aggressively, a claim that different business activities have been 'artificially' separated. In one particular case we successful argued against such a persistent contention where the clients had operated two different, albeit related, businesses as separate entities but had genuine commercial reasons for doing so. Because the turnover of the new business was below the VAT threshold there was a significant saving in duty that would otherwise have been due if HMRC had succeeded in contending that they should be regarded as one business for VAT purposes. Our own resolute actions and a willingness to take the issue to Tribunal if necessary eventually persuaded HMRC to drop the case.
Business or Capital Transaction?
Where a disposal of an asset occurs, particularly when that asset is land and buildings, HMRC will usually scrutinise the facts very carefully with a view to attempting to treat it as a business rather than a capital transaction. This was the situation with one of our clients, who had a business connected with the building trade, personally acquired and renovated a property as an investment, with a view to renting it out, but had been persuaded to sell it instead. After establishing all the relevant facts, and assembling all the the key evidence, we pressed the case for this being treated as a capital transaction and eventually we prevailed. This saved our client the substantial additional tax that would have been due if the HMRC's arguments had not been challenged it such a positive manner.
How Understated Profits are Calculated.
Once HMRC has established that business profits have been understated for the year of enquiry they will often look for additions to profits for earlier years (they could go back 20 years!). It is important not to let them press unrealistic claims for these years, using say an inappropriate gross margins method. We have successfully resisted this sort of claim, firstly by establishing that the margins exercise for the enquiry year was wrong and then pressing for an alternative basis of recalculating any earlier years' additions. In one case HMRC were pressing for additions which would have meant additional tax of over £50,000, let alone interest and penalties. However our efforts and careful scrutiny of all the information resulting in the clients having to pay less than £1,000 in total, not least because we identified a significant error that their previous advisor had missed.