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The case of the dancer: highlighting the importance of standing firm

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Advisors will no doubt have seen the coverage in the national press of the case involving the Stringfellows dancer whose clothing costs were allowed by the Tribunal as a tax deduction.

Although the press understandably focussed on this particular issue, the case actually highlights some points of wider interest to tax advisors generally.

Firstly, HMRC adopted two different approaches to the clothing expense:

  • the expenditure had been incurred but was not tax deductible
  • no allowance could be made in any case because the taxpayer had not retained receipts for 80% of the expenditure hence had not demonstrated that the expenditure had been incurred.

The Judge stated that HMRC cannot argue that the expenditure was not actually incurred despite the lack of receipts, as to do so would be an allegation of dishonesty when no such allegation had been advanced. It has always been a myth that no receipt automatically means no deduction, but that is an argument often advanced by HMRC.The Judge’s comments in this case are therefore welcome.

Secondly, the Judge noted that the inspector had a hard-nosed attitude from the outset of the case which soured the relationship with the taxpayer’s advisor. This then had a direct impact on any potential penalty in respect of travelling expenses, which were ruled as disallowable.

The Judge concluded that HMRC must take some responsibility for the alleged “obstreperous” behaviour by the agent, which initially led HMRC to restrict the available penalty reduction. The Judge added that the agent’s robust advocacy and support of his client’s case should not be held against him. This makes it clear that HMRC’s behaviour, as well as the taxpayer’s, can have a direct impact on penalties. Robustly defending a client in appropriate circumstances is the right thing to do, not a weapon for HMRC to use by threatening increased penalties if the agent does not do as the inspector wishes.

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How Crowe can help

Dealing with and standing up to intransigent HMRC inspectors is never easy. Our multi-award winning tax resolutions team is vastly experienced in such matters and can help guide you, so please contact us if you or your clients need help in this respect.

Contact us

John Cassidy
John Cassidy
Partner, Tax Resolutions