1. Home
  2. UK Finance Discussions
  3. Revenue getting really aggressive these days

Revenue getting really aggressive these days

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.

Reply to
nobdoy
Loading thread data ...

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

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.

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

Reply to
tim(not at home)

"tim(not at home)" wrote

If you can find a reference for this, I will probably fire the accountant...

Yes, that is not being disputed.

It sounds like winding up the loss making company (a reasonable business decision anyway, with any lossmaking company) is a good idea.

Reply to
nobdoy

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?

Reply to
Graham Murray

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.

formatting link

Reply to
Tiddy Ogg

Tiddy Ogg wrote

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.....

Reply to
nobdoy

So do they jump on all these huge companies who make huge losses year after year?

Reply to
mogga

No. I operate a company for a living.

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

Reply to
tim (back at home)

They don't have to. They don't fiddle their tax.

Reply to
Peter Saxton

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.