What is it?
Where HMRC issue "Code of Practice 8" or "Requirement to Correct" it should always be noted that HMRC do not, at the time of issue, suspect that a person has deliberately taken illegal steps to reduce their tax bill (ie tax fraud or tax evasion) but have made a small mistake or oversight of a non intentional level.
This often is just a one year review, the lowest level of targeted investigations. Mostly it is easily remedied by correcting the required tax return. If, however, this is a pattern that has emerged for some years then, depending on how much tax is involved, the decision is made whether this then is looked at under COP 9.
Useful links
Case Study
Background
A new client engaged our services after receiving a COP 8 letter asking for information on his business premises claim as he had claimed 1/6th of all bills. This in itself is not unusual, but our client was a plumber so most of his work was at someone else’s premises and he carried out just paperwork and admin in his study.
They were questioning the £8500 claimed for the year which at first glance did appear high, however our client had built a permanent structure in their garden that not only did they work from, but stored all their tools and housed the parts they ordered. It was lockable, had running water and all other utilities independent from the main house, plus extensive insurance due to the cost of materials stored.
Action
We amended the 1/6th of all bills (previously claimed) to full costs for the building as it was solely for business use. We advised our client could then be caught up with having to pay business rates on these “premises” so we did not claim any council tax. Whilst we had to reduce the claim made down to £7250, our client had failed to claim travel expenses at 45p a mile (new vehicle not liable to VAT so could choose the mileage method) so that claim went up by £2500.
Conclusion
My client ended up with a smaller tax bill from these in depth investigations than originally had expected.