Revenue getting really aggressive these days


N

nobdoy

I have a couple of small businesses, one (manufacturing) doing very
well and the other (equipment rental) not doing so well.

The 2nd one has lost a lot of money (through capital allowances,
mainly) and this loss was incorporated into the accounts of the 1st
one, thus saving a lot of corp tax.

All done very properly, above board and done on detailed accounting
advice all the way.

The revenue approved the accounts for several years.

Now, however, they have opened an enquiry into the 2nd one, alleging
it isn't a proper business because

- there was no real business plan

- the information supplied by me (in a verbal interview) suggests it
could have never made money anyway

- the activity is something in which I have a personal interest (and
thus it isn't a real business) because I rent the equipment myself

- the customers are known to me personally

- the customers were known to me personally before I started it
(actually false)

etc

Most of their points apply to a huge number of not-so-successful
businesses!!

They even disown themselves from their benefit in kind advice which is
on their own website, saying that some case law overrrides it.

I am spending many hours drafting detailed replies to their attacks.
They even want evidence of conversations with customers i.e. stuff
which I can't possibly provide.

The accountant is OK but I know that ultimately he will throw me to
the lions, as it normal in the accounting profession (you don't upset
the Revenue over just one client). He says they are on commission and
like to wear people down through time and expenses in dealing with
these enquiries.

He did make one big mistake which was that the business rents out some
equipment and this limits the first year cap all. to 25%, whereas he
wrote it down 40%. They accepted this at the time (after a brief
enquiry) but noticed it 3 years later. I don't know if this was the
trigger, or if it was a particular former employee who tipped them off
(spitefully). It actually makes negligible difference to the bottom
line, or tax due.

At which point do these things go higher up, to some sort of appeal,
and what is the process for it?

I might actually wind up the 2nd business because it is becoming
genuinely increasingly difficult anyway. I wonder if this will make
the revenue go really mad. But it is a perfectly reasonable business
decision.
 
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T

tim(not at home)

I have a couple of small businesses, one (manufacturing) doing very
well and the other (equipment rental) not doing so well.

The 2nd one has lost a lot of money (through capital allowances,
mainly) and this loss was incorporated into the accounts of the 1st
one, thus saving a lot of corp tax.

All done very properly, above board and done on detailed accounting
advice all the way.

The revenue approved the accounts for several years.

Now, however, they have opened an enquiry into the 2nd one, alleging
it isn't a proper business because

- there was no real business plan

- the information supplied by me (in a verbal interview) suggests it
could have never made money anyway

- the activity is something in which I have a personal interest (and
thus it isn't a real business) because I rent the equipment myself

- the customers are known to me personally

- the customers were known to me personally before I started it
(actually false)

etc

Most of their points apply to a huge number of not-so-successful
businesses!!
But are they offsetting the losses elsewhere?

The revenue are right in theory.

If you run a "hobby" company that has no potential to make a profit in
its own right, you cannot offset the losses elsewhere. You can carry
them forward until you do make a profit.

AIUI the revenue informally allow you to offset losses for a maximum
of three years before investigating the loss making company.

Unles you can convince the revenue that this loss making company
really does have potential to make profits down the line then they can
*and will* disallow you the possibility of using these losses against
another business

They even disown themselves from their benefit in kind advice which is
on their own website, saying that some case law overrrides it.

I am spending many hours drafting detailed replies to their attacks.
They even want evidence of conversations with customers i.e. stuff
which I can't possibly provide.

The accountant is OK but I know that ultimately he will throw me to
the lions, as it normal in the accounting profession (you don't upset
the Revenue over just one client). He says they are on commission and
like to wear people down through time and expenses in dealing with
these enquiries.
I think you have to understand what you are getting here.

If your other company really does have the expectation of making a
profit in the future, then by offsetting the losses elsewhere you are
only getting the relief early. You will pay more tax down the line
when your second company makes a profit as most of its expenses will
have already been used up.

OTOH if your second company never makes a profit then you have had
something that you shouldn't actually have ben entitled to.

Is it a good idea to spend lots of time/money to get some relief early
if the alternative is that you shouldn't have it at all?
He did make one big mistake which was that the business rents out some
equipment and this limits the first year cap all. to 25%, whereas he
wrote it down 40%. They accepted this at the time (after a brief
enquiry) but noticed it 3 years later. I don't know if this was the
trigger, or if it was a particular former employee who tipped them off
(spitefully). It actually makes negligible difference to the bottom
line, or tax due.
This is a separate issue and should be dealt with under the usual
rules.
At which point do these things go higher up, to some sort of appeal,
and what is the process for it?

I might actually wind up the 2nd business because it is becoming
genuinely increasingly difficult anyway. I wonder if this will make
the revenue go really mad. But it is a perfectly reasonable business
decision.
One you are entitled to take. But don't expect to be able to offset
the losses against your other buisness, or to personally keep the
proceed of sale of any capital items that exceed their written down
cost - this cash belongs to company 1/the revenue

tim
 
N

nobdoy

tim(not at home) said:
But are they offsetting the losses elsewhere?

The revenue are right in theory.

If you run a "hobby" company that has no potential to make a profit in
its own right, you cannot offset the losses elsewhere. You can carry
them forward until you do make a profit.

AIUI the revenue informally allow you to offset losses for a maximum
of three years before investigating the loss making company.

Unles you can convince the revenue that this loss making company
really does have potential to make profits down the line then they can
*and will* disallow you the possibility of using these losses against
another business
If you can find a reference for this, I will probably fire the
accountant...
I think you have to understand what you are getting here.

If your other company really does have the expectation of making a
profit in the future, then by offsetting the losses elsewhere you are
only getting the relief early. You will pay more tax down the line
when your second company makes a profit as most of its expenses will
have already been used up.

OTOH if your second company never makes a profit then you have had
something that you shouldn't actually have ben entitled to.

Is it a good idea to spend lots of time/money to get some relief early
if the alternative is that you shouldn't have it at all?


This is a separate issue and should be dealt with under the usual
rules.
Yes, that is not being disputed.
One you are entitled to take. But don't expect to be able to offset
the losses against your other buisness, or to personally keep the
proceed of sale of any capital items that exceed their written down
cost - this cash belongs to company 1/the revenue
It sounds like winding up the loss making company (a reasonable
business decision anyway, with any lossmaking company) is a good idea.
 
G

Graham Murray

- the information supplied by me (in a verbal interview) suggests it
could have never made money anyway
Does a business have to make money? Philanthropists give money away to
charity, donate or commission scholarships/buildings/monuments etc and
this is accepted. So should it not also be possible for the
philanthropist to establish a business which provides goods or
services at less than cost price?
 
T

Tiddy Ogg

Does a business have to make money? Philanthropists give money away to
charity, donate or commission scholarships/buildings/monuments etc and
this is accepted. So should it not also be possible for the
philanthropist to establish a business which provides goods or
services at less than cost price?
Then it's called a charity and has its own rules. The OP was setting
off the losses against a proper company, thus fiddling his tax.

Tiddy Ogg.
http://www.tiddyogg.co.uk
 
N

nobdoy

Tiddy Ogg said:
Then it's called a charity and has its own rules. The OP was setting
off the losses against a proper company, thus fiddling his tax.
I think you are jumping to an unwarranted conclusion there, as well as
using the emotive term "fiddling his tax".

A rental business can make money, like any other business, if the
gross margin is sufficient *and* there are enough customers i.e. the
asset utilisation is high enough.

In this case the revenue are saying it isn't a real business, because
it failed to attract enough customers to make an overall profit. To me
that seems an aggressive policy, because many capital intensive
businesses make no money for a few years, and the revenue are making
the judgement retrospectively which of course is easy to do.

The person (tim not at home) who responded to the first post wrote as
if he is a practicing accountant who is quoting some internal revenue
guidance note, but he hasn't been back with a reference.....
 
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M

mogga

I think you are jumping to an unwarranted conclusion there, as well as
using the emotive term "fiddling his tax".

A rental business can make money, like any other business, if the
gross margin is sufficient *and* there are enough customers i.e. the
asset utilisation is high enough.

In this case the revenue are saying it isn't a real business, because
it failed to attract enough customers to make an overall profit. To me
that seems an aggressive policy, because many capital intensive
businesses make no money for a few years, and the revenue are making
the judgement retrospectively which of course is easy to do.
So do they jump on all these huge companies who make huge losses year
after year?
 
T

tim \(back at home\)

I think you are jumping to an unwarranted conclusion there, as well as
using the emotive term "fiddling his tax".

A rental business can make money, like any other business, if the
gross margin is sufficient *and* there are enough customers i.e. the
asset utilisation is high enough.

In this case the revenue are saying it isn't a real business, because
it failed to attract enough customers to make an overall profit. To me
that seems an aggressive policy, because many capital intensive
businesses make no money for a few years, and the revenue are making
the judgement retrospectively which of course is easy to do.

The person (tim not at home) who responded to the first post wrote as
if he is a practicing accountant
No. I operate a company for a living.
who is quoting some internal revenue
guidance note, but he hasn't been back with a reference.....
Much of my knowledge has come from groups such
as this one. There are better than me on this group who
can direct you to the legislative description. You'll
just have to hope that one of them does so.

Alternatively you can assume that I am wrong and
continue (to IMHO waste money) persuing a case
that you ought not win.

(BTW I'm back at home again now, somewhat jet lagged.)

tim
 
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P

Peter Saxton

So do they jump on all these huge companies who make huge losses year
after year?
They don't have to. They don't fiddle their tax.
 

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