When the inspector calls

Case study

Barry Rose and Jeff Bloom own and jointly manage the Rosebloom Hotel and Country Club in Yorkshire.

One day, the Inland Revenue contacted Bloom and arranged to visit the business premises the following week to review the PAYE records. The company accountant had been sacked four months earlier and hadn't been replaced, and Bloom had assumed responsibility for the accounts.

On the day of the visit, Bloom showed the two Revenue staff into the general office, introduced them to the member of staff who dealt with the ledgers and then left for a meeting. During the course of the day, the Revenue men had full access to the business records and many of the staff.

Bob Hobson, the gardener, who works mornings only, mentioned that he hadn't seen Mrs Rose or Mrs Bloom working at the country club since each had had her first child. The inspectors noted that the wives each received a salary of £15,000.

Bloom thought nothing more of the visit until a call two weeks later. The Revenue had launched a full inquiry into the company's corporation tax return for the year to 31 August 1999, and both directors' 1998-99 income tax returns, and wanted to see all books and records relating to that period. They also wanted a meeting with Rose and Bloom.

Following a telephone conversation with the inspector, Bloom learnt that the inquiry arose not only from the findings of the PAYE inspection, but also from an anonymous letter.

The Revenue was seeking large amounts of tax, interest and penalties. A tax investigations specialist was brought in to counter the assertions and, 10 months later, a settlement was reached - but the company had to pay £3,000 relating to tax due on sundry benefits to employees.

This case study is a work of fiction and consequently the names, characters and incidents portrayed in the article are fictitious. Any resemblance to actual persons, living or dead, events or localities is entirely coincidental.