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HMRC Investigations and how to deal with them

HMRC Investigations


A 29% increase in the number of tax investigations in 2014 gave a clear signal that HMRC are keen to be seen to be dealing swiftly and sharply with tax crime in the UK. 

The new policy targets repeat offenders rather than one off errors but this does not mean any company or individual can afford to be anything less than accurate in their accounting.

In July 2015 the Government announced an additional £60 million allocated for HMRC to target serious tax evasion and evaders and £300 million to investigate individuals, SMEs and public bodies.

Being investigated by the taxman may sound like an intimidating and stressful process, and it certainly can be if you are trying to hide something. For most people however, it should be a relatively painless process.

Why might HMRC investigate a company?

Tax investigations are usually instigated for one of three reasons:

·         A random enquiry - HMRC selects a number of businesses at random in order to evaluate tax returns in what they consider an ‘at risk’ sector

·         An aspect enquiry - an investigation into a specific section of an individual or company’s tax accounting, the non declaration of income from savings for example

·         A full enquiry – where HMRC examine numerous elements of an individual or company’s accounts. A full enquiry can involve documentation and records going back further than a year.

What reasons may HMRC give for investigating a company?

Some of the principle reasons HMRC has given for investigating a company are simply small, avoidable errors while othersare obvious pointers to evasion:

·         Filing returns or paying late and making errors that need to be corrected

·         Significant inconsistencies, or variations, in tax returns

·         Tax returns that seem to be inconsistent with how busy a business is or the owner’s lifestyle.

·         Declaring income from property

·         Possession of offshore bank accounts

·         The sector a company operates in being considered high risk or one which HMRC is targeting

·         A tip off.

What to expect during an investigation.

A tax investigation may sound intimidating but it is straightforward.

Initially a company or individual receive a letter requesting information about their accounts and detailing what type of investigation is in process.

How to deal with a tax investigation

The first thing to do if you are given notice of a tax investigation is to engage an accountant or firm who are tax specialists. They can advise on documents to submit and how best to respond for requests for information. They can also advise you if they consider that HMRC are taking too long or being unreasonable in their requests.

Do not destroy evidence or lie as that will result in more severe penalties.

It is wise to consider making any payments on account towards a possible tax bill, this will reduce the amount of interest due. As with any issue relating to tax the aim is to reduce the amount payable.

If HMRC have turned their attention onto you and you want to make the process as quick and painless as possible, you can contact us today to talk to one of our team.