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HMRC internal manual

Technical Teams Operational Guidance

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HM Revenue & Customs
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Settling the enquiry: agreeing income profit additions: tax treatment

In Code 9 cases it is desirable, and usually possible, to keep the agreement of income or profit additions distinct from the subsequent agreement of the tax treatment. This is because in most cases there is an established source of income or profits and the focus of the case is normally whether that income, or those profits, has been properly returned. Additional income or profits disclosed or demonstrated by the investigation will usually be attributed to that source.

Particular problems do arise, but in cases involving extractive fraud (see EM2710 and onwards) matters of tax treatment are typically secondary and subsequent to the problem of agreeing the income or profit etc. additions. Arguments on tax treatment are usually about limiting or shifting liability rather than erasing it altogether.

Matters are more complicated in Code 8 cases and in those Code 9 cases which are substantially concerned with non-extractive additions (see EM2760).

Here the addition and tax treatment may be closely related or inseparable. Frequently the claim is that because of specific technical argument what the Investigator has identified as income or profit does not create any additional liability. This is because it is not income, profit, a gain or anything else that gives rise to liability and where this is the position there may be no point in attempting to agree the quantum of the ‘income or profit’ independent of its chargeability.