ADR brings unexpected success

    A previously successful service company fell upon difficult times after the sole director was forced to focus his attention on serious personal issues rather than company business. This caused the loss of key contracts which when added to the effects of the recession leaving the company’s finances in a precarious position.

    Being a service company, salaries were the main cost and PAYE/NIC the main liability. Whilst most other costs were negligible and generally kept up-to-date by Direct Debit, payment of PAYE/NIC became a struggle.

    The director successfully negotiated time to pay arrangements with HMRC but when the company began to recover, HMRC suddenly lost patience and forced it into liquidation. To add insult to injury, HMRC then carried out an employer compliance check, decided that the director was guilty of a wilful failure and used the provisions of Regulation 72 Income Tax (PAYE) Regulations 2003 to transfer liability to the director personally. Assessments totalled around £44,000 over a three-year period.

    The company’s accountant challenged the Direction without success, reaching the point of an appeal to the Tribunal before engaging Abbey Tax.

    A review of the case papers revealed that HMRC’s position was very strong, mainly because the director’s counter arguments lacked sufficient substance and detail. In fact, it seemed a hopeless case. However, we worked with the director and accountant to put together a detailed and cohesive defence and took advantage of HMRC’s Alternative Dispute Resolution (ADR) facility.

    At the ADR meeting, HMRC initially maintained its position but as each of its individual contentions were challenged with detailed and constructive counter arguments, its position softened. Eventually the point was reached where, whilst HMRC maintained its stance of wilful default, the total liability was reduced to just over £6,000, a reduction of around £38,000. The director was keen to conclude on this basis in order to bring this long-running dispute to an end.

    The experience not only shows the value of HMRC’s ADR process in resolving difficult disputes but also emphasises how thorough preparation is essential to its success. It also demonstrates how cases which initially appear to be a lost cause and could easily be conceded can still be recovered.

    For more information on how Abbey Tax can help resolve your difficult disputes, contact Steve Price