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Talking to the Taxman

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Listen and understand | Get your facts right | Challenge politely | Accept fair ruling | Have realistic alternatives | See also

According to the old saying, death and taxes are the only certainties. And the reason taxes are certain is that the tax authorities have a lot of power to collect them.

Yet when you get a call from the 'taxman' (or woman, of course), it does not mean you have to do just as they say. Here's a way of ensuring you only pay the tax you really have to.

Listen and understand

When you first get the letter or phone call from the tax authorities, it can be rather alarming. It is important at this time to focus on understanding rather than just reacting.

Don't panic

First of all, don't panic. Tax authorities are trying to ensure they apply tax laws correctly, not just squeeze you until you are broke (even though it seems this way). And tax laws are pretty complex.

So if you get a letter or phone call, start with the assumption that this is a human being (not a monster) just trying to do their job. And it's your job to help them.

Another don't: don't ignore it. Sticking your head in the sand like an ostrich and hoping it will all go away is more likely to make things worse.

Listen, read, think

So first, listen to what they say or read the letter carefully. Read it once, then read it again. If you are talking with a person, start by asking  questions for clarity, not challenge. Try to sound reasonable and certainly not angry.

Then pause, calm down and think about the information what you have received. Separate legitimacy from pain by considering whether it is reasonable within the taxation laws.

Get help

If you don't know what is right or not, the first place is online where there is much written about taxes and what they mean. You may also ask partners, friends and colleagues for their views.

When you have found out all you can by free methods, you may want to get an interpretation from professionals, but of course this will cost you, so only take this route if you are being asked to pay a large sum.

A cheaper route may be to use decent software when working out your income taxes.

Get your facts right

Before you reply, ensure you know what you are talking about. .

Your financial situation

Know all the income you have gained, including from salary, investments and so on. Know also what you have paid in tax during the current period and in past periods.

And of course it is important to know what cash you have for paying any dues to the authorities.

Tax laws and requirements

Know what obligations you have, and what you are allowed, for example in tax-deductable amounts, time for repayment and so on.

This can be an area of great complexity, so perhaps here it is most important to consult professionals, though again, remember that this advice is not cheap.

What you owe

The bottom line is what you owe (or, if you are lucky, what they owe you!), so this is something to be very clear about. There are three ways to calculate this: do it yourself, get your tax advisor to do it, or let the tax authorities do it. If it is a lot of money and you have a complex financial situation, then the second choice is the best.

Challenge politely

When you are know the facts, then the next step is to prepare and make your challenge.

Prepare your arguments

First put together what requests and rationale you can use, such as paying less or paying in instalments. Know the tax requirements and allowances that you can call on.

Also consider what is 'reasonable', for example if the tax authorities have delayed in contacting you, making it reasonable that you do not have to pay the demands immediately or that it should be now reduced.

One of the best things you can do is to give more facts to them, to help them improve their ruling.

Prepare your words

Turn your arguments into words. If you are writing, craft the sentences. If you are speaking, think hard about what to say and consider practicing what to say.

Be clear and concise

While confusion and obfuscation are options, remember that the tax authorities can take their time and also take a hard line. If you can help them with clear and simple communication, then they may be more likely to accept what you say.

Communicate to the right person

If possible, communicate with a named person rather than a general office. With individuals, you can build up a relationship and negotiate more reasonably.

Accept fair ruling

When the tax office comes back to you after your challenge, they may accept it, reject it or take it into account in a modified request.

What is a fair ruling

Know what is fair, as opposed to what you want. Fairness starts with being within the rules, and often is similar to what other people have had to pay.

What to challenge further

Remember that you can always challenge the tax rulings, within the regulation of challenge, of course. You can ask for more information, you can note that procedure has not been correctly followed, you can ask for more time, and so on.

Whatever your further challenge, the biggest decision is whether you are ready to continue the battle. And this can be much about how determined you are and how deep your pockets are to face legal and advisory costs. 

Have realistic alternatives

One of the most powerful thing you can have is a strong walk-away alternative. Take time to understand and prepare this, even if you will never need it.

Alternatives can include escalation to higher courts, asking for delays so you can get the money together, and so on.

Deploying Your walk-away needs care, of course, and do be ready for a longer-term battle. Remember: death and taxes.

See also

Developing Your Walk-away