HMRC Tax Investigations: What To Expect
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HMRC Tax Investigations: What To Expect

Written by John A Waller, Consultant. Reviewed June 6th, 2024.

HMRC tax audits and inspections can be complicated, lengthy, and stressful. You should seek professional guidance if you know your tax position.

Investigations by HMRC may open up large tax bills, leading to potential insolvency.

However, options exist to help, so seek help from a licensed insolvency practitioner is crucial.

Likelihood of HMRC investigation

The latest options for HMRC to monitor mean tax consultants with risky actionsremain now likely to be checked.

In the computer age, sophisticated algorithms catch up fast with Tax Fraudsters.

Inspections usually happen with companies registered for VAT and PAYE. (HMRC Compliance Checks

However, routine tax audits on income tax and even company corporation tax remain unlikely. So, suppose HMRC feels you are hiding income or deliberate claims on your tax returns. In that case, deliberate withholding of income may be considered fraud, and so possible criminal proceedings moving on.

How far back does HMRC investigate?

  • No Intentional Genuine Errors – 4 years.
  • Irresponsible Errors – 6 years.
  • Intentional Tax Evasion – 20 years.

Why is HMRC Investigating My Company?

• Errors on your tax returns that need to be rectified.

The late filing of a tax return can result in a penalty.

  • payment late,
  • tax returns inconsistent.

• Higher than average industry expenses, which reduces profit and, therefore, the amount of tax that can be paid.

• You failed to declare income from your rental property.

• High-risk industry.

• Whistleblowers.

HMRC Tax Investigations: What To Expect – Investigation Process

Firstly, HMRC writes to advise you of their intentions. An initial request for outlined information is known as an Information Notice.

Then an inspector of tax will request a visit.

HMRC will then advise you on what aspect of tax they wish to examine your: -.

• Self-assessment tax return.

• Company tax return.

• PAYE records and returns.

• Accounts and tax calculations.

Suppose you retain an accountant to deal with your financial matters. HMRC will then contact assuming prior authority is confirmed. However, note a penalty will be payable if you fail to reply.

Dealing with a Tax Investigation?

HMRC supports SMEs committed to filing their tax returns and making their payment correctly. Making an honest error should not cause concern, as HMRC usually grants Time to Pay.

So once a tax investigation commences, 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.

One of the highest costs in any business remains the time spent dealing with HMRC. 

However, you will incur additional costs.

HMRC embraces the costs of the actual investigation; an investigation requires the preparation of books and records before the inspector’s visit. 

Upon completion, if HMRC proves, you are at fault. Then you may have financial penalties, including any unpaid tax, interest, and a penalty.

HMRC is required to advise you of the taxes they examine.

Once the tax decides to examine you, they must clarify what aspect of tax they wish to investigate beforehand. Suppose HMRC wants to look at your taxes for multiple years simultaneously. In that case, the law requires them to inform you beforehand, which gives you the option to refuse.

HMRC may obtain information from taxpayers and other third parties. But, should an officer review your VAT return and request to view your corporation tax records without notice, you have a legal right to decline.

Examining officers may scrutinise your business premises.

HMRC Examining officers may: –

  • Remove business records for inspection.
  • Analyse business financial books and journals.
  • Query owners and staff about the business.
  • Inspect the computer and data stored.

Furthermore, HMRC may wish to inspect third parties and premises. However, they may not check your residential premises’ savings if the business used them to store stock of any kind and held or operated business assets.

You can therefore appeal against an inspection notice, but if the Tax Tribunal however decides on the notice, there is no further right of appeal. 

Furthermore, HMRC may apply penalties in the event of any proven obstruction.

HMRC Tax Investigations: What To Expect – If Fraud Has Taken Place 

If fraud is suspected by HMRC, the examination falls under CODE 9.

Recently, the Contractual Disclosure Facility handled this, so the Examiner offers the examined the chance to open up to reduce penalties and time.

Main points:

  • Suspected Taxpayers offered to enter a contract with HMRC to disclose fraud fully;
  • If you meet these conditions, HMRC will agree to discontinue the criminal proceedings against you.
  • Taxpayers who come across irregularities have 60 days to report them. A complete exposure may follow within an agreed time scale accepted by the investigating officer;
  • Criminal investigations can begin if an individual does not fully cooperate or complete disclosure.

If commenced, the criminal investigation brings new powers to HMRC.

HMRC Criminal investigation powers

Criminal investigation powers remain the exclusive use by officers duly authorised. Powers against taxpayers remain only used on those breaking the law and refusing to pay taxes. Therefore, officers may:

  • Make an application to request production orders for any information to be submitted;
  • Search Warrants;
  • Carry out arrests;
  • Search suspects and premises once arrested.
  • Recover criminal assets through the Proceeds of Crime Act 2002.

HMRC, while sharing some criminal investigation powers with other UK law enforcement agencies, has a unique focus on HMRC-related offences, particularly fraudulent tax evasion. Their operations are comprehensive and adhere to all three UK judicial systems.

What to Expect – Tax Avoidance Schemes

Suppose you’re involved in any tax avoidance schemes that you should disclose under the disclosure rules. If that is the case, the law requires you to give HMRC information about the scheme.

By doing so. HMRC: –

  • gain preliminary information about schemes and how they are said to work
  • Find out who has used a scheme and how long they have been using it for

Failure to declare a scheme to HMRC risks you receiving a fine. 

HMRC Appeal?

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

Tax Avoidance Schemes

Suppose you’re involved in any tax avoidance that you should disclose under the disclosure rules. If that is the case, the law requires you to give HMRC information about the scheme.

By doing so. HMRC: –

  • gain preliminary information about schemes and how they are said to work
  • Find out who has used a scheme and how long they have been using it for.

Failure to declare a scheme to HMRC risks you receiving a fine.

Three types of disclosure exist: –

  • VAT disclosure regime (VADR)
  • Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT)
  • Direct taxes (including Apprenticeship Levy), Stamp Duty Land Tax, Inheritance Tax and National Insurance contributions (DOTAS)

How can we help?

If grappling to make HMRC payments or need assistance with HMRC demands, contact HBG Advisory on:

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