Chips can go cold and suffer significant amount of wastage. If you exaggerate or guess the answer to any question in a meeting, you could find yourself paying tax based on a model which is not realistic.
However, Force Majeure and its relevance in the accounting period should be one of the first areas of review.
They will then use this information to ascertain that if X amount of a material was purchased then that would make Y number of the item for sale. Throwaway remarks or observations made in course of a meeting may be recorded and then can be used in the model.
This is where utmost care is required, It is very important that you do not showboat during the course of a meeting with HMRC. However, if for any reason the records which were used to prepare the original accounts are no longer available for HMRC inspection, then you are effectively inviting HMRC to ignore the original accounts and pursue their own sales figure via a BEM.
However, you need to remember that purchases do not always mean the resulting product was sold. This would affect business during the riots and for some time after. Force Majeure is also known as an act of god, which in terms of Mother Nature is incredibly useful.
Alternatively, the trading premises may have suffered a small fire or flooding, or it may be as obscure as significant road works in the proximity of the shop. In this study, I will base the example on the operation of a fish and chip shop. In our case, we have chips.
For example, say our chip shop was situated in the middle of an area in which there was a riot. If you do not give HMRC a reason to produce the model, then the results cannot be used against you. Find out how we can help you and your money.
If you can demonstrate that the model does not take into account specific events then HMRC will find it difficult to use the results of the BEM to justify adjustments. In respect of our fish and chip ship, say that on average 20 sacks of potatoes were purchased a month, HMRC can then calculate how many portions of chips would have been available to sell.
This is a fairly straightforward exercise, in which they test the accuracy of sales by modelling what the expected income should have been based on available business records. Y multiplied by the sale price will then ascertain what the sales should be once adjusted for closing stock.
Say, for example, in a business where an item is made from materials, they will perhaps use purchase invoices to ascertain how much of a material was purchased X. However, the first angle to review when formulating a defence against the results of a BEM is Force Majeure.
Method In the circumstances of incomplete records, HMRC will try and base the starting point of their model on what they consider to be indisputable evidence.
The defence of Force Majeure involves discrediting the results of the HMRC model to show that it does not take into account specific events which affected the business during the accounting period.
Just because raw material comes in, does not mean it was sold. Force Majeure can be anything which has caused an unusual result, such a chance event or accident.
Defence There are many defences against the results of a business economic model. Background BEMs should always be resisted, as experience teaches us that the result will invariably be against you.Home» Case Studies» Economics» Micro / Business / Managerial Economics Case Studies Micro / Business / Managerial Economics Case Studies In case you are not able to complete the transaction successfully, please send an email to [email protected] A case study tells what happened to and in a business (or non-profit, or industry) over time.
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On occasion during an enquiry into a tax return, HM Revenue & Customs (HMRC) may wish to test the accounts included in a taxpayer’s return by using a Business Economic Model (BEM). This is a fairly straightforward exercise, in which they test the accuracy of sales by modelling what the expected income should have been based on available business.
Representing a broad range of management subjects, the ICMR Case Collection provides teachers, corporate trainers, and management professionals with a variety of teaching and reference material. The collection consists of Economics case studies and research reports on a wide range of companies and industries - both Indian and international, cases won awards in varies competitions, EFMD Case.Download