The Do's and Don'ts of tax research

May 24, 2013 2013

research

Understandably, the current recession has resulted in many businesses cutting back on their consultancy spend and so many employers and clients prefer to do as much research themselves as possible when seeking our help on an employment tax matter as this helps to reduce our fees.

This is fair enough and we are happy to work with clients on this basis as it helps to strengthen the working relationship with the client for the longer term. BUT, it's true what is said, "a little knowledge can be a dangerous thing" and this is especially the case with tax as it can often be very unclear what the answer is. Certainly, on PAYE related matters, there can often be more than one answer which isn't really helpful to specialists and non-specialists alike.

So, with this in mind, we list below some Do's and Don'ts when doing tax research :

DO's........1) Start with tax legislation

Although tax legislation is often too clunky, long-winded and vague to provide a suitable answer to the problem, it is the best place to start when looking at any tax question or issue. The law is the law and legislation will always be the main source to provide a resolution in the event of a dispute with HMRC, especially if this goes all the way to the First Tier Tax Tribunal.

 Of course, there can be different interpretations of the law, especially where the legislation is not clear, and so more research may be necessary on some things to get the answer.

 2) Look at HMRC's technical manuals/other guidance

In the employment tax context, we mean things like the Employment Income Manual, Employment Status Manual, CIS Reform Manual, 480 & 490 booklets, CWG2 & CWG5, etc etc.

Knowing what HMRC says on a particular issue or situation can be very helpful in determining the position on the matter you are looking at.

 However, this comes with a very serious caveat (see Don'ts below)

 3) Consider past experiences

We admit this is slightly unfair and not possible in many cases. In most situations, this will be the first time the employer will have had to consider the specific matter in hand so no past experience will be useful or relevant in trying to find the solution.

This is probably where an advisor can add most value. Having experience of dealing with similar issues in the past, including agreeing the position with HMRC, can often be the key factor in establishing how the particular issue should be dealt with, or how HMRC should be approached.

 4) Look at case law

 It's always difficult for non specialists to a) find relevant cases and b) to understand the key technical points that can be used in your favour, or otherwise, with reference to the issue in hand. However, a strong precedent set in a previous case can be extremely helpful with a contentious issue.

 Reviewing case law is not for the faint hearted and we would only recommend this approach for certain clients where we thought they wouldn't just be wasting their time.

 Again, this type of research is often best left to the professionals amongst us.

DON'Ts .......1) Over rely on HMRC guidance

 There is a tendency for non tax specialists (and some professionals it has to be said) to think that just because something is published by HMRC that it is legally binding.

 HMRC manuals and guidance documents are simply HMRC's own interpretation of the tax law. Yes, in many areas HMRC's guidance is helpful and consistent with the profession's general view, and it is sometimes a brave employer or advisor who takes on HMRC on a particular issue when HMRC have clearly set out their stall on the technical position. BUT, as we have said before, it can be the case that HMRC's view on a specific technical point is not correct, or not the only answer, and so it is perfectly acceptable to deviate from HMRC guidance where there is justification in doing so.

 The mistake that many clients do is to dive straight into the EIM or whatever and take whatever they find as the answer to their technical query.

 2) Cut corners

 Things like Googling for the answer or trying to get a quick answer through many of the finance forums on the internet usually always ends in tears. You may only get half a story, or be told complete cobblers or be getting "advice" that is years out of date.

tears 

If you are doing your own research, do it properly. By that we mean check relevant and reliable sources. This could include HMRC, tax magazines, tax bodies, websites of professional firms, technical presentations, etc etc.

 3) Give up !!

 There is a lot of detective work involved in tax research. Like criminal investigations, it may take a lot of leg work, evidence gathering and elimination before you get the suspect /answer. Or, it can even end up "case unsolved".

If you don't find the answer in the first half an hour of trying it doesn't mean that the answer isn't out there. Keep trying, and trying and trying until all avenues have been explored and you have something tangible to go on - and just be thankful that you're not paying someone an hourly rate to do it for you ! *

 * We should qualify this statement by saying that an experienced advisor doing research on your behalf should be able to do so much quicker as they will know where to start looking and be able to identify relevant information much earlier in the process. Therefore you should seriously consider how long detailed research will take you, or one of your colleagues, to do compared with the potential fee your advisor will charge before going ahead.

 4) Understimate the "unknown"

 With tax, it's often not just a case of what you know/have found out, but what you DON'T know ! It's all very well having researched a tax issue and thinking you have come up with THE answer. But is there something you have missed ? Something that could be hugely important to the ultimate treatment or HMRC agreement on the particular point at hand ? Again, this is where a specialist can really add value. Experience can be invaluable in covering all angles, including the lesser known technical arguments or "twists" that could make all the difference.

 

So, the moral of the story is, yes there is certainly a place for employers to do their own tax research in this age of information at your fingertips and necessary cost control. But, please do be careful, and don't be afraid to work with your advisors , there are some out there who can add much more value than what they charge (hint, hint....like Optimum PAYE !)

Good Luck and happy researching !

 

 

 

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