HMRC barking up the wrong tree with dog breeding enquiries

HMRC is using information from pet insurers to wrongly accuse taxpayers of commercial breeding. In this client case study we look at how our team proved that HMRC’s conclusions were wrong and that two of our clients were engaged in nothing more than hobby breeding of their family pets.
In both cases the clients had initially been unrepresented, but after unsuccessful negotiation with HMRC (including demands for tax, interest and penalties) our TIDR team were approached for their specialist services.

Although there are different tests that allow us to check whether one’s activities represent a trade or not, when it comes to breeding activities there is a grey area that is not well covered by HMRC’s guidance. Without extensive tax knowledge, for the unrepresented taxpayer it can be difficult to navigate through their enquiry process.
 
On our appointment on both cases we obtained an abeyance in HMRC action while we conducted a full review. In both cases, HMRC’s Hidden Economy team had opened the enquiry following HMRC being in possession of information from PetPlan insurance. HMRC was using the data recorded by the clients in the online insurance registration process to challenge trading positions. However, in our experience, without a thorough analysis of each breeder’s case, this data is often misunderstood or misinterpreted. On numerous occasions, this has led HMRC to embark on a wrong trail concluding that taxpayers are commercially breeding rather than actually being engaged in a side-line activity or hobby. 
 
In case A, the client was required by HMRC to prove the uncommercial nature of his breeding activities. He was required to provide documentation, which, instead of relinquishing HMRC’s queries, only strengthened the HMRC officer’s resolve to require even more historical information, with unreasonable deadlines. When the deadlines were not met, additional penalties were charged. Not only did our TIDR team succeed in cancelling the penalties in this case, we also demonstrated that the insurance providers’ data was unreliable and the client’s breeding activity was uncommercial – all with just one review letter to HMRC. Consequently, the case was not what HMRC believed and any profit resulting from such a side-line activity was incidental and, therefore, not taxable.
 
In case B, HMRC was looking into the client’s alleged cat and dog breeding activities. The insurance provider’s data showed a high number of policies, breeds of which the client did not recognise. After reviewing all the information provided by the client, our TIDR team was able to demonstrate to HMRC’s satisfaction the difference between the number of policies and the client’s actual records concluding the case in our client’s favour. Again, after just one letter. 
 
This was great news for both clients and highlights the impact specialists can have on cases where unrepresented taxpayers struggle to have their voices heard.
 
Buzzacott’s Head of Tax Investigations and Dispute Resolution, Mark Taylor comments on both cases:
“We have been involved in a number of dog breeding enquiry cases. In all, we have now concluded, HMRC had wrongly held the view that our clients had been trading as commercial dog breeders and had incorrectly sought tax, interest and penalties. We are pleased to have shown to HMRC that its conclusions were wrong and our clients were engaged in nothing more than hobby breeding of their family pets”.

For more information or advice please contact:

Mark Taylor
Head of Tax Investigations and Dispute Resolution
T | +44 (0)20 7556 1243
E | taylorm@buzzacott.co.uk
 
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