Self-Assessment Dispute Solicitors
An HMRC enquiry into a self-assessment return — challenging income figures, expense deductions, allowable losses, or the correct treatment of specific receipts — can be prolonged and expensive if it is not managed correctly from the outset.
Self-assessment disputes arise from HMRC's formal enquiry powers under s.9A Taxes Management Act 1970 — used to open enquiries into personal tax returns filed by individuals, sole traders, and partners. HMRC can open an enquiry into any return within 12 months of the filing date; after that period, a discovery assessment can be raised where HMRC discovers an understatement of income or an over-claim of relief. A solicitor will advise on the scope of the enquiry, manage the provision of information to HMRC, challenge any proposed adjustments to the return, and pursue the appeal to the First-tier Tax Tribunal where HMRC's position is legally incorrect.
Self-Assessment Disputes — Key Issues
Self-assessment disputes — the issues most commonly raised by HMRC in enquiries into personal tax returns.
HMRC's self-assessment enquiries cover a wide range of issues — from simple disputes about the quantum of business expenses to complex challenges about the correct tax treatment of specific transactions. A solicitor will identify the correct legal position and present it to HMRC and the tribunal.
Sole trader expense disputes — the "wholly and exclusively" rule
Sole traders can deduct expenses incurred "wholly and exclusively" for the purposes of the trade from their taxable income — travel, professional subscriptions, equipment, and business premises costs. HMRC challenges expense deductions where it considers the expense has a dual purpose (business and personal), is excessive for the scale of the business, or is capital expenditure (not immediately deductible). Home office claims — a deduction for the proportion of domestic costs attributable to business use — are frequently challenged where HMRC considers the proportion claimed is excessive. A solicitor will present the evidence that the expenses were incurred wholly and exclusively for the business, challenge HMRC's disallowance, and manage the appeal.
Unexplained credits and lifestyle — HMRC raising additional income
HMRC's enquiry into a self-assessment return may extend to a "lifestyle check" — comparing the taxpayer's disclosed income against their known expenditure (mortgage payments, vehicle costs, holidays, and bank credits). Where the taxpayer's lifestyle appears inconsistent with their declared income, HMRC raises a "cash flow" assessment — estimating undisclosed income based on the discrepancy. Cash flow assessments are often significantly overstated. A solicitor will challenge the basis of HMRC's assessment — presenting the evidence of non-taxable receipts (loans, inheritances, gifts, sale of assets), the taxpayer's historical savings, and any other explanation for the lifestyle discrepancy — and reduce or eliminate the assessment.
Property income disputes — rental income, allowable costs, and finance costs
Property income must be reported on the self-assessment return — the total rental income less allowable deductions. HMRC challenges property income returns where: the rental income is understated; repairs are claimed as capital improvements (not immediately deductible as repairs); or finance costs are claimed incorrectly following the changes introduced by the Finance (No. 2) Act 2015 (which restrict the deduction of mortgage interest to the basic rate tax credit). A solicitor will review the property income figures, identify the correct deductible costs, and challenge HMRC's assessment of additional income or disallowance of costs — presenting the correct tax position.
Discovery assessments — HMRC raising tax outside the enquiry window
Where HMRC misses the 12-month window to open a formal s.9A enquiry, it can raise a discovery assessment where it "discovers" that the return contained an inaccuracy or omission. A discovery assessment requires HMRC to have made a "discovery" of an actual loss of tax — not a theoretical risk of loss. The time limit for a discovery assessment is 4 years (careless behaviour), 6 years (deliberate behaviour), or 20 years (fraud). A solicitor will challenge whether the conditions for a discovery assessment are met — whether there was a genuine discovery, whether the assessment was raised in time, and whether the loss of tax alleged actually exists. Successful discovery assessment challenges on procedural grounds can extinguish a substantial tax liability.
Allowable losses — trade losses, capital losses, and anti-avoidance
Self-assessment taxpayers can offset trade losses against other income in the same or previous tax year (relief under s.64 ITA 2007), carry forward trade losses against future profits of the same trade (s.83), or set losses against capital gains (s.71). HMRC challenges loss relief claims where: the activity generating the losses does not constitute a "trade" for tax purposes (a hobby or activity without a profit motive); the losses are "sideways" losses from a limited activity loss making scheme; or the loss arose in a period that is out of time for carry-back relief. A solicitor will assess the availability of loss relief, present the evidence of a genuine trade, and challenge HMRC's disallowance of losses at appeal.
Closure notices — ending the enquiry
An HMRC s.9A enquiry can remain open indefinitely unless HMRC issues a closure notice — a formal notice confirming the enquiry is complete and setting out any amendment to the return. HMRC is entitled to keep an enquiry open while it is gathering information, but it cannot use the enquiry as a pretext to keep a return under indefinite review. Where HMRC is unreasonably prolonging the enquiry — taking too long to respond to information provided, or raising new issues after the main issues have been resolved — the taxpayer can apply to the First-tier Tribunal for a direction requiring HMRC to issue the closure notice. A solicitor will manage the enquiry timeline and make the closure application where HMRC's delay is unreasonable.