The incidence of tax investigations is increasing significantly. The HMRC has recently recruited an extra 3,000 employees – many of which will undoubtedly be investigating businesses as we speak.
The number of people and businesses being investigated has doubled in the last two years to 237,215 investigations.
The revenue does not need a reason to investigate your business – they can investigate in a random way as well as their more targeted efforts. So here is the blog dog’s tips to dealing wisely with the prospect of a tax investigation:
Step 1 – Remain Calm.
As was said many investigations are of a random nature. It is most important that you remain calm and collected. The first you will know about an investigation will be a letter from the HMRC. Read and digest, you will need to act promptly – but above all keep a calm head.
Step 2 – Contact your Accountant FIRST.
If you don’t have an accountant – it is highly advisable to seek the advice of one. If you do have one – they should be your first port of call. They are likely to have experience of dealing with the revenue. They should make sure you do what you need to do on time with the minimum of stress. They should be able to read between the lines slightly and start to get an idea of why you are being investigated.
Step 3 – Why am I being investigated.
The letter you receive should give some understanding of why or what information the HMRC requires – and this should start to give you clues about the nature of the investigation.
There are three types of enquiry –
a) Aspect – Investigates one particular part of your tax affairs – i.e. your sales for a certain quarter. In this case they have a material reason for making this enquiry.
b) Full – Inspecting every aspect of your tax return or vat returns going back a number of years. They may have a reason for inspecting a whole period.
c) Random – A scatter gun audit approach to keep everyone on their toes.
Step 4 – Establish the Severity of the Investigation.
In most cases your accountant will be able to help you in the resolution of the investigation. He will ascertain if you have done something to attract the attention of the HMRC. For example is your income dramatically up or down, are your expenses excessively high in a period or are your returns consistently late.
In some more serious cases you really need a tax fraud specialist for example if the HMRC suspects that a deliberate tax fraud is taking place – Code 9 (COP9).
Step 5 – Contact the HMRC.
When you have the appropriate assistance – get your accountant to contact the revenue. Make sure you stay in touch with the process. The revenue should give you details of how it is progressing and your accountant will know at what stage you are at.
Some frequently asked questions include>>>>
a) How long on average will an investigation take?
Anything from one letter to several months.
b) How far back can the revenue go in investigating me?
The revenue could go back twenty years – but it is more usual for them to investigate a period of six years.
c) Can I be sent to prison?
If there are deliberate cases of fraud that is a possibility. Generally the HMRC will seek to recoup any tax found to be due and will levy interest, fines and penalties if applicable and keep it as a civil legal matter.
d) Can I voluntarily disclose information – if I think I have wrongly reported to the HMRC?
Yes in many cases this is the best course of action. The revenue looks more favourably upon someone who reports a discrepancy voluntarily – rather than withholding information.
e) Can I insure against a future investigation?
Yes there are Tax Enquiry Fee Protection policies available to potentially cover the costs of an investigation incurred in accountant’s fees. Quay Accounts endorse a policy of this type – please ask us for more details.
The likelihood is that over the period of the life of a business you will in some form or another be questioned by the HMRC.
It is worth bearing in mind that the revenue is not an ugly monster out to get you. They are employed to do a job – but in the process should do everything to help you – rather than trapping you. In most cases the outcome will not be severe. Your accountant is there to help you – keep in contact with them and try to keep it all in perspective. This will be another bump in the road – something to be careful about and do what you can to avoid – but just another bump.
– Please follow this link for the Tax Investigation Publication issued on this website in September 2015.
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