Revenue defends its 'gone fishing' letters

The Inland Revenue has gone on the defensive to counter the growing criticism of their exercise of sending out 'enabling letters' to small businesses, hinting that something is wrong with their tax return, but not specifying what the error might be.

Professional bodies, small businesses and their advisers have been equally outraged and concerned by the Revenue's 'fishing' exercise. Recently, the Federation of Small Businesses wrote to the Chancellor requesting an official apology from his Department.

The enabling letters have been sent to selected self-employed taxpayers with turnover up to £150,000. This led to concern that it could be the start of an enquiry or that their accountants or advisers have made an error.

Now, Marjorie Williams, the Revenue's Director of Service Delivery Support, has explained, in an article in Taxation magazine, why the Revenue issued these letters.

Marjorie Williams explained in her article that the Revenue’s aim was to point out some common mistakes which apparently affect significant numbers of tax returns. Revenue research shows that mistakes are not unknown where an agent is acting. The idea is to nip problems in the bud and avoid the need for enquiries. She makes clear that the initiative was not intended to cast doubt on the skills of professional advisers, and confirms that all agents should have received copies of the enabling letters if a form 64-8 is in place. She also gives a firm view that the enabling letters do not launch an enquiry because a Section 9A letter has to state expressly that the Revenue intends to enquire into a return, whereas by contrast, the enabling letter states that its aim is to avoid an enquiry.

The Tax Faculty at the Institute of Chartered Accountants has been one of the groups to draw attention to this. Its website said: "We and our Working Together colleagues have no problem with the idea of giving taxpayers information which will help them get their returns right. We can see that this could help unrepresented taxpayers or those with (dare we say it) less competent advisers. Nor would we dispute the Revenue’s duty to encourage tax compliance as best they can. But this positive initiative should not be linked to a letter which says something may be wrong and which appears to threaten an enquiry.

"And to expect recipients to put something right, without telling them what may be wrong, just causes unnecessary anxiety, irritation, and time spent in double-checking last year’s return.