12 January 2015

To Mr Guy Marriott, President of The Sherlock Holmes Society

Strictly Private and Confidential

Sir
The (Tax) Return of Sherlock Holmes
I write to you with some trepidation, conscious as I am that this letter may contain
shocking and unwelcome news, but I feel a duty to bring it to your attention. I leave it
to you to decide whether to share it with your members. If you choose not to, I will
understand entirely and you may rely upon my discretion not to divulge this to any
other person.
My uncle, Derek Hinrich, was a long-time member of the Sherlock Holmes Society, a
keen contributor to its journal and, with his wife Jessie, to its jaunts abroad. He
introduced me and my brothers to the Canon through Christmas gifts of the collected
papers as published by Murray, which we all enjoyed. I have since read with interest
my uncle's writings on the subject, some of which appeared in your journal and
others in that of your West Country branch, the Poor Folk on the Moors. I
particularly enjoyed his learned article on The Royal Mallows 1854-58, although I
must admit to having felt rather queasy over The First Pipe of the Day. Derek could
be a witty and expansive dinner companion, especially after a bottle of what he
always called the Pope's Newcastle, and we had many interesting discussions on the
subject of Holmes. In this letter I have adopted D. Martin Dakin's system of
references to the page numbers of the Murray collected editions of Long (L) and
Short (S) Stories, in commemoration of those Christmas gifts of over fifty years ago.
I have therefore at least some knowledge of the Canon, and there are elements of it
which have always perplexed me. There is, for example, the way Professor Moriarty
appears as from nowhere and then disappears all in the space of one short story! The
few other times that the Professor is mentioned for instance in The Valley of Fear
(L639) it seems always to be by Holmes, with precious little evidence to support
him. And a further puzzle - where did the money come from? Holmes never seemed
to want for it, yet hardly ever charged a client any fee. These are problems which

have obviously perplexed the Society. Its finest minds, notably A.M. Robertson
(Baker Street Finance) T.F. Foss (The Case of the Professor's Ineptitude) and Gavin
Brend (My Dear Holmes: Mainly Moriarty) have attempted explanations which I
think even they might describe as not wholly adequate, although D. Martin Dakin (A
Sherlock Holmes Commentary: The Empty House p.157) came remarkably close to
guessing the truth.
I would hesitate to differ from the opinions of these distinguished writers, were it not
for a remarkable document which has recently come into my possession. As I have
already mentioned, Derek could be a lively dinner companion, but as a career civil
servant he knew how to keep a secret. Occasionally, since he liked intellectual games,
he would let slip oblique hints for instance, did I know that the first operatives of
the Secret Intelligence Service sought exemption from income tax to preserve the
secrecy of their identities? These hints were couched in such terms that I could never
quite piece them together, so, in helping Jessie sort out the house after Derek had
passed away, I was excited to find a document box containing a bundle of old papers,
which seemed to have been left to my uncle by his father (and my grandfather)
Edward Hinrich.
Grandpa was himself a long-time civil servant, retiring with an OBE as Assistant
Controller of Supplies in the Ministry of Works two years after I was born, so I knew
him as a keen chess-player (who taught me the game) and lover of all games and
puzzles. I was therefore interested to find from these archives that his first position in
the Civil Service had been obtained by competitive examination as an assistant clerk
in the Inland Revenue.

Extract from the London Gazette 2 June, 1911

Here was a coincidence, for I myself followed a career in taxation, albeit on the other
side from my Grandfather, after I left university in 1971.

Delving through the archive box, past the Gazette notices and other memorabilia, I
came finally to a brief note of Edward Hinrich's civil service career and, under it, an
aging copy of what appeared to be a very old file note extracted from the Precedent
Books of the Special Commissioners of Taxation.
In those halcyon days such things as Pay-as-You-Earn and Self-Assessment were not
even dreamed of and only relatively high earners had an obligation to submit a tax
return and to pay tax. Most taxpayers' affairs were dealt with by local Inland Revenue
officials with the title of Surveyor of Taxes (now less grandly Inspector of
Taxes). If a taxpayer disagreed with a Surveyor's assessment, he could appeal to the
local General Commissioners who were, like magistrates, made up of local business
people assisted by a clerk who was a qualified lawyer. In exceptional cases the
taxpayer could elect for hearing before the Special Commissioners a specially
selected body of tax experts who heard the appeal in secret. One such case was
Holmes v Moriarty , heard at Somerset House before Messrs O'Connell and Smiles,
Special Commissioners, in May 1891.

The documentary evidence upon which the Inland Revenue had based their estimated
assessments was, at first sight, powerful. It was clear from Dr Watson's memoirs that

Mr Holmes enjoyed a very comfortable lifestyle in sought-after premises and

travelled extensively without concern as to cost, yet whose income (as reported in his
annual tax return) was wholly inadequate to fund such a lifestyle. But the Inland
Revenue were not content with merely wondering, like A.M. Robertson, how this
could be. They had prepared a report by a member of their elite tax investigation and
forensic accounting team (which acquired the title of Enquiry Branch in 1921) who
had observed Sherlock Holmes over a period of months in order to better ascertain
his levels of income and expenditure. That investigator's name was Moriarty.
Moriarty's report gave an account not only of Sherlock's movements but of his
increasingly erratic behaviour over the winter of 1890-91, and it presented a
reconstruction of his known expenditure and declared income, showing a significant
shortfall of income. Sherlock's defence had to prove, because the balance of proof
rested with the taxpayer, that the estimated assessments were excessive and that his
income had in fact been declared correctly. One of the most respected QCs of the
time appeared on his behalf, and the evidence and legal argument revolved around
three different strands.
I must admit, as a tax practitioner, that what I found most fascinating were the legal
arguments surrounding the deductibility of certain expenses claimed by the taxpayer
against the income from his profession as a consulting detective in the UK, as to
whether they were wholly and exclusively for the purposes of said profession, or
whether there was an element of personal enjoyment which would invalidate any
deduction. For example the Special Commissioners, having themselves tried the first
pipe of the day from the dottles of the last, concluded that such a vile mixture could
not possibly involve personal enjoyment which, along with other factors, enabled
them to conclude that Sherlock must have indulged, as his counsel argued, solely to
further his professional studies of tobacco ash. Now I understood why Derek wrote
that article, and I have since found that Colonel R.D. Sherbrooke-Walter reached a
similar conclusion (Holmes, Watson and Tobacco Vol I No 2).
I doubt if you will be so entertained by such arcana of tax law, although you may
like Holmes's counsel's quip that he paid so little tax because he made brilliant
deductions. You may however be interested to learn that Sherlock, apparently on his
own initiative rather than with expert advice, had carefully segregated his consulting
business into two partnerships: one,with Mycroft as minority partner, consisted solely
of the poorly paid work which he conducted in the UK for UK clients, while the
much more lucrative part was conducted solely abroad for foreign clients and for
considerable fees in cash and sometimes in kind . By receiving the income abroad
and taking care how moneys were transferred to the UK, Sherlock sought to avoid all
taxation, because such foreign income was then only taxed on a remittance basis a
system applying ever since Income Tax was introduced by Pitt the Younger in 1798,
which only disappeared in the late 20th century.
The careful and ingenious planning involved in Holmes' tax affairs shows that he

spent far more time than was good for him studying tax legislation. However, you
will no doubt be most interested in the third revelation that Sherlock Holmes in fact
received a monthly income for services rendered to the UK Government, for which
income Mycroft himself had negotiated a tax exemption from the government - in
order to preserve Sherlock's secret status as a government agent. So successful were
Mycroft and Sherlock in keeping this arrangement secret that even the Inland
Revenue were not aware of it. In Baker Street Finance A.M. Robertson wonders
Did Mycroft subsidise his brother at other times than the wander years? and
speculates that the Master may have been paid from the Secret Service Account. How
close to the truth he was!
Evidently, then as now, different government departments (for no doubt well-meaning
reasons of secrecy) often failed to talk to each other, and it was only at this late stage
that the pieces were put together. By then, of course, Sherlock, noting a persistent
shadow following him, had conjured up a paranoid dream of a criminal mastermind
as an adversary stalking his every move. There have been, unfortunately, several
cases over the years where a taxpayer's health has suffered from the strain of an
Inland Revenue investigation, so it is perhaps not surprising that Holmes reacted
badly to Moriarty's attentions. Even Watson could not fail to notice that Holmes was
looking even paler and thinner than usual, although he allowed himself to be
palmed off with a feeble excuse. Mycroft (the mystery coachman of The Final
Problem (S548)) had now been drawn by Sherlock into his paranoid fantasy and had
realised that something was seriously amiss. So it was that poor Holmes was shunted
off to a Swiss sanatorium to recover his sanity, leaving Watson with a cock-and bull
tale about an epic struggle at the Reichenbach Falls and, three years later, swallowing
an even more preposterous tale of wanderings through Tibet.
Such matters were explained to the Special Commissioners in a written deposition by
Mycroft and, in view of the involvement of the Secret Intelligence Department, the
proceedings and Commissioners' decisions were kept secret, as they have been to this
day. Which is surprising, to say the least. I am well aware that Inland Revenue
officials take their oath of secrecy extremely seriously, but what of Watson?
There he was, a doctor by profession, faced by a mentally agitated and unwell friend
drawing him into odd cloak-and-dagger activity, involving both Sherlock and his
brother Mycroft assuming disguises. Should he not have suspected that something
was amiss? Admittedly, at the time Watson only knew Mycroft from the affair of The
Greek Interpreter in 1882, where the older brother gave the impression of an indolent
genius, but in The Bruce-Partington Plans (1895) Mycroft was revealed to be at the
hub of Government. Surely then, faced with such important new information, Watson
should have looked again at the events of 1891 and seen the pattern that eluded him
at the time, although there is no sign of that from his writings. Indeed, in The Final
Problem he lays out the story as told to him by Holmes and refers (S537) to recent
letters in which Colonel James Moriarty defends the memory of his brother. I
understand that this short passage has caused great difficulty to Holmes scholars

because, on his return, in The Empty House (S580) the Great Detective refers to the
name of Professor James Moriarty. Since we now know that Professor Moriarty
was a figment of Holmes' imagination, the purported letters from Colonel Moriarty
must also be fiction. I would surmise that Mycroft concocted them using the
soubriquet Colonel James Moriarty, having heard Sherlock use only Professor
Moriarty in his paranoid fantasy, in order to allay the suspicions which Mycroft
knew he would have if he stood in Watson's shoes. Unfortunately, on his return,
Sherlock gave his nemesis a Christian name which just happened to be the one
Mycroft had chosen. Luckily Professor Moriarty's first name was never mentioned
again and Watson, in the joy of seeing his old friend return, seems to have quite
overlooked the inconsistency.
Perhaps I do the good Doctor a disservice. He may have been sharper than appears
and guessed the truth, but loyalty led him to suppress it. Whichever explanation is
correct, the Holmes brothers clearly knew their man.
So there you have it: Moriarty as criminal mastermind was a figment of Holmes's
fevered and unbalanced mind, for which he needed a long period of rest in a Swiss
sanatorium in order to recover. Sherlock's income and lack of tax payments came
partly from careful tax planning of overseas income and partly from a stipend from
the UK Government Secret Service which was tax-free. I'm afraid that the answer is
not nearly so romantic as Watson's own story, but there it is.
The explanation of how my grandfather had a copy of this tax case in his possession
links the very beginning of his Civil Service career with the very end of the career of
the Great Detective. His Last Bow is the last case in chronological order recorded in
the Canon. There is some uncertainty as to the author, but the best guess is that Dr
Watson chose the third person style of narrative as a device to suggest closure. You
will remember, of course, that the case involved Sherlock Holmes assuming the
disguise of Altamont for two years in order to infiltrate the spy ring of Von Bork
shortly before the commencement of the Great War. Holmes admitted to Watson that
he had been acting for the British government . However he did not mention his
brother Mycroft. Some commentators have suggested that Mycroft was in fact the
narrator of the case. Leaving aside the many flaws with this theory, there is one overriding consideration, as my grandfather's note explains: Mycroft had died several
years before, in 1907.
At Mycroft's death the drawbacks to his method of operating must have become all
too clear: in order to maintain secrecy, and relying on his prodigious memory, he had
committed hardly any information to paper. So, on his death, the Government found
that effectively it had to start its Secret Intelligence Bureau again from scratch, which
it did in 1909, recruiting Major Vernon Kell and Mansfield Cumming. It was
Cumming who sought to emulate Mycroft by seeking tax exemption for his secret
agents, but he was outflanked by the Inland Revenue, who set up a special division to
deal with the tax affairs of such individuals. Over time this division expanded,

acquiring the title PD1, to encompass the tax affairs of all civil servants, but in the
early 20th century it was a small and select department, into which Edward Hinrich
was inducted in 1911, having passed the competitive entrance examination with
distinction. When Sherlock Holmes was reactivated as an agent in 1912 to
masquerade as Altamont, his tax file was transferred to the special Inland Revenue
department, where my grandfather must have read it with great interest.
As a postscript, it appears that Moriarty's son and grandson followed him into the
Inland Revenue, the grandson achieving immortality in the tax world as the relevant
Inspector of Taxes in a 1957 dispute Moriarty v Evans Medical Supplies (Tax Cases
vol 37 p540). One hopes that his grandfather drew secret pleasure from being called a
criminal mastermind, probably not the worst insult an Enquiry Branch official has
had to endure. Edward Hinrich came back from serving in World War 1 with the Civil
Service Rifles, having been wounded serving in Palestine with General Allenby, and
moved to the Ministry of Works, where he remained until his retirement in 1951,
passing on his interest in Sherlock Holmes to his son and keeping the secrets of his
Inland Revenue career for Derek to discover once he also joined the Civil Service.
As for Holmes, the Literary Agent's brief preface to the Short Stories quotes a witty
critic's remark He may not have been killed when he fell over the cliff, but he was
never the same man afterwards. Occasionally, at moments of great stress, Holmes
was prone to drop some allusion to Professor Moriarty into his conversation, doing
so to the end of his career see for example the denouement with Von Bork in His
Last Bow (S 1083). One wishes that in 1891 Holmes could have benefited from the
advice given fifty seven years later by an eminent judge to a tax litigant in person:
If I might add a word to you, it is that I hope you will not trouble your head further
with tax matters, because you seem to have spent a lot of time in going through these
various Acts, and if you go on spending your time on Finance Acts and the like it will
drive you silly.
Yours faithfully,
Roger Emerson