The tax man cometh... again

Picture this scenario: a tax inspector and a taxi driver meet up at Haymarket. It sounds like the start of a joke... except it’s not, and it’s definitely not funny.

Let’s meet the two protagonists of this story.

First, the Taxi Driver. Much maligned and generally misconstrued as being too street-smart, too opportunistic, and making much more money than they own up to. Whilst the majority of taxi drivers in Edinburgh do not deserve that reputation, the fact is that they are an easy target to bemoan. Furthermore, they are an easy enquiry target for HMRC to pick on!

Secondly, the HM Inspector of Taxes. Also much maligned and generally perceived as having undergone a personality bypass. With a popularity rating now only ahead of bankers, the average tax inspector does not expect too many dinner party invitations from ex-school chums now pursuing a self-employed career.

It is amazing that tax inspectors always assume taxi drivers get lots of tips; when they themselves rarely ever tip. Clearly, the two protagonists are doomed not to see eye to eye on many agenda items, particularly taxi drivers’ earnings.

Unfortunately, the reality for both parties is that this misunderstanding is exactly what is going to happen very, very soon. The fear factor is returning to the streets of Edinburgh, with the recent announcement that the local HMRC Inspectorate can once again choose whom, and from what source, to investigate.

That’s right people … for a while HMRC Head Office in the South were advising their Inspectors in the North whom to investigate, and the result was that things got a bit quiet on the taxi-driver investigation front. However, all that is about to change, and now that joined-up thinking has been restored, and closer to home tactics about to be deployed, the local predominant cash trades can expect to be profiled again.

Should all those in the taxi trade be worried?  Probably not – although that depends on their level of disclosed net earnings versus their ability to live costs. Please do not think, for one second, that living from day-to-day from cash only, will fool a clever HMRC Inspector, (and they are indeed clever), from reaching the obvious conclusion that the driver’s disclosed earnings are unrealistic.

It would also be naïve to believe that merely disclosing takings based on fuel receipts will convince an Inspector that the income levels are accurate. They have many other methods of checking the perceived income derived from any taxi vehicle.

Furthermore, the real problem for the person under investigation is the simple fact that HMRC Inspectors do not need to prove that the accounts are wrong and the taxi driver guilty. It is the taxi driver under investigation who must prove that the accounts are totally correct, and himself innocent. Accordingly, since the Inspector of Taxes knows the only way the taxi driver can prove himself innocent is to provide irrefutable and totally reconcilable evidence that all the jigsaw pieces of his financial affairs fit tightly together, then they have themselves a fairly easy target source.

The HMRC Inspectors are not interested in personalities. Their job is simply to achieve a worthwhile settlement of back taxes, penalties and interest for the Treasury coffers. Much needed it is too, so expect little by way of compromise or concession from HMRC. They will be on a mission – very soon.

Our advice – get yourself a really good taxi accountant … who is both clever and street-smart, and more importantly knows how to win at Haymarket.