Tax Enquiry or Tax Investigation
HM Revenue & Customs (HMRC) can open an enquiry into the tax affairs of any
taxpayer.
Statistically 5% of tax returns are picked up for a tax enquiry or tax investigation, although
HMRC target their efforts where they think they can obtain the highest tax take.
Be warned!
If you are a target of a HMRC enquiry, having picked you for an enquiry, in most cases
they will already have an expectation that the enquiry will yield additional tax!
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We can also advise those unlucky enough to have been targets of a HMRC enquiry of HMRC investigation.
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affairs, or where you are unlucky enough to have been selected for a HMRC enquiry or tax investigation,
but are unsure how to respond.
In our extensive
experience, you need to critically review your situation before first contact with HMRC
Let our tax experts guide you, advise you and protect your interests - we have over 30 years
experience of tax investigations and tax enquiries. Our principal, Paul Kerr used to work in HMRC and has
long years of experience in how to successfully handle a HMRC tax enquiry
+ How do HMRC target Taxpayers for enquiry?
HMRC pick their targets for a number of reasons. Sometimes they receive specific information and there is no record of the taxpayer having declared it e.g. a property sale.
Some information is obtained themselves by trawling sources of information which give information about taxpayers. These are diverse and can include Land Registry, SDLT returns, Building Control, Grant bodies, payments by Large Contractors or Organisations, Government bodies paying rent to landlords for claimants, etc
A good many tax enquiries are opened into taxpayers already in the Self Assessment system. All self-employed persons have to show their income and expenses in the same format and this allows HMRC's systems to interrogate returns to identify those whose figures look out of line with the norm or those whose expenses claims seem excessive. A similar approach applies for Rental businesses
+ What should I do if I am chosen for HMRC enquiry?
Firstly, do not panic! Tax enquiries are routine, and while HMRC target their enquiries, this does not mean they will always find additional tax you have to pay
Speak to your professional adviser immediately or let us help with the enquiry, but do not handle the enquiry with HMRC yourself. TAKE PROFESSIONAL ADVICE BEFORE YOU SPEAKING TO OR MEETING WITH HMRC!
+ How does an enquiry usually proceed?
Usually you will receive a letter saying an enquiry is being started. HMRC will ask for information and then very often a meeting is suggested between the taxpayer and the Inspector.
The meeting is routine in most cases where a taxpayers business or property accounts are being reviewed. HMRC reviews the information beforehand and prepares a long list of questions for you. These seem to start off as very basic questions, but in fact HMRC is writing down everything you say and searching for information he may use to attack the integrity of your accounts later in the interview and you will not always be fully aware of the implications of your reply until it is too late.
You MUST take professional advice before the interview or you are creating a situation where you may make careless or unguarded remarks that may be misinterpreted by HMRC or may be used against you in a way you did not expect.
After the meeting, most enquiries are resolved reasonably quickly, but some enquiries can drag on for years.
If tax is found to be underpaid, the enquiry will result in a "settlement" with HMRC
+ HMRC say I owe tax and want to make a "settlement" with me.
Where tax has been underpaid by a taxpayer, HMRC will usually settle this by way of a contract settlement - a legal agreement between HMRC and the taxpayer to pay the unpaid tax, with interest and usually a penalty at the end of the enquiry and within an agreed timeframe (usually 30 days) In extreme cases HMRC has the right to take people to court and seek to jail them, but this is ususally reserved for high profile or serious tax evasion cases.
Interest is usually charged in all cases as HMRC see this as "commercial restitution" as you had the use of the money over that period and not HMRC.
A penalty is usually chargeable, but not always as this depends on individual circumstances.
+ How much will I be penalised if I owe tax as a result of an enquiry?
A penalty can be charged of up to 100% of the tax you failed to pay. This penalty is mitigated by the seriousness of the case, the length of time the tax was unpaid, the size of the tax bill, the degree of co-operation offered by the taxpayer and his professional adviser, whether this is the first time you have been found to have omitted tax and whether the taxpayer volunteered the information or was discovered by HMRC to have omitted tax.
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