HMRC Tax Investigations: What To Expect
Tax audits and tax inspections can be complicated and stressful. However, unless you are sure of your tax position, then you should engage in professional guidance urgently.
Tax Investigations may open up large tax bills, leading therefore to potential insolvency.
Options exist to assist, and so help from a Licensed Insolvency practitioner is Essential.
Likelihood of HMRC investigation?
The latest options for the HMRC to monitor Tax means consultants displaying risky action are now therefore likely to be checked.
In the age of the computer and sophisticated algorithms are catching up fast on Tax Fraudsters.
Inspections usually happen with companies registered for VAT and PAYE. (HMRC Compliance Checks)
Routine tax audits on income tax and even company corporation tax however remain unlikely. However if HMRC feels you are hiding income or deliberate claims on your tax returns then deliberate withholding of income may be deemed fraud and so possible criminal proceedings moving on.
Why is HMRC Investigating My Company?
• Errors exist on your tax returns that therefore require attention;
• Late filing of Tax return;
- payment late;
- tax returns inconsistent;
• Higher than average industry expenses reducing profit for Tax;
• Income from rental property undeclared;
• High-risk industry;
HMRC Tax Investigations: What To Expect – Investigation Process
HMRC firstly will write to advise you of their intentions. An initial request for outlined information known as an Information Notice.
Then an inspector of Tax will request a visit.
You then will be advised at what aspect of Tax they wish to examine.
• Your self-assessment tax return;
• Your company tax return;
• PAYE records and returns;
• Accounts and tax calculations.
Suppose you retain an accountant to deal with your financial matters. Then the HMRC will make contact assuming prior authority confirmed. However, note a penalty will be payable if you fail to reply.
Dealing with a Tax Investigation?
HMRC support to small businesses that are genuinely trying to file their tax returns and make their payment correctly. Making an honest error should not cause you any concern as the HMRC will allow Time to Pay usually.
Once a tax investigation commences, then several months will pass whilst actioned.
It may grow as an investigation, looking at other Tax aspects such as your tax affairs, lifestyle to income review.
Financial and Time Costs of an Investigation?
HMRC investigations usually remain highly intrusive and expensive.
Though one of the highest costs in any business however remains time spent dealing with HMRC.
However, other costs you will incur.
HMRC embrace costs of the actual investigation; an investigation requires the preparation of books and records before the inspector’s visit.
Upon completion. In the event HMRC proves you are at blame. Then you may have financial penalties to pay, including any unpaid tax, interest along with a penalty.
HMRC required to advise you the taxes they are examining.
Once the Tax chooses to examine you, then they are therefore required to make clear what aspect of Tax they wish to investigate beforehand. If though HMRC want to look at several taxes simultaneously, they are required to inform upfront, allowing you to refuse.
HMRC may obtain information from taxpayer and other third parties. But, should an officer be carrying out a review of your VAT return, and requests also to view your corporation tax records without notice, then you have a legal right to decline.
HMRC examining officers may scrutinise your business premises.
Examining HMRC officers may:
- Examine business financial books and records;
- Question owners and staff about the business;
- Examine the computer and data stored;
- Extract business records for inspection.
Further, HMRC may wish to inspect third parties and premises. However, they may not inspect your residential premises saving if the business used them to store stock of any kind and held or operated business assets.
You may appeal against an inspection notice, but there is no right of appeal once a Tax Tribunal has agreed to the notice.
The HMRC may further apply penalties in the event of any proven obstruction.
HMRC Tax Investigations: What To Expect – If Fraud Speculated
If fraud suspected, then the examination falls under CODE 9.
Recently, this is handled now by Contractual Disclosure Facility, so the Examiner offers the examined the chance to open up to reduce penalties and time.
- Suspected Taxpayers offered to enter a contract with HMRC to disclose fraud fully;
- Then HMRC undertake to cease with the criminal process;
- Taxpayers are given 60 days to reveal any irregularities. A complete exposure may follow within an agreed time scale accepted by the investigating officer;
- The start of criminal investigations can start if an incomplete disclosure made or no cooperation.
Criminal investigation if commenced, bring new powers for HMRC.
Criminal investigation powers
Criminal investigation powers remain the exclusive use by officers duly authorised to do so. Powers against taxpayers remain used only on those breaking the law and refusing to pay Tax. Therefore, officers may:
- Make an application to request for production orders for any information to be presented;
- Search Warrants;
- Carry out arrests;
- Search suspects and premises once arrested.
You have a right to appeal to HMRC at any point.
If your appeal has failed, then:
- HMRC review of the decision;
- Ask the Tax Tribunal to hear your appeal;
- Alternative Dispute Resolution (ADR) – a mediation service managed by an impartial third party and used typically when all else has failed.
How can we help?
If grappling to make HMRC payments, or require assistance with HMRC demands then contact HBG Advisory on: