Tax Investigations from HMRC (Her Majesty’s Revenue & Customs) raised over £26 billion in 2015 and HMRC have now increased their resources devoted to this area.

Types of Enquiries

An enquiry can be either a straight forward question about one or two points or more detailed tax investigations.

HMRC enquiries have two objectives:

  1.  To seek to detect errors and areas in which the principles may be open to different interpretation (this is the most obvious).
  2.  To test the system of recording income accurately which is particularly pertinent in a cash business (this is less obvious).

More serious Enquiries may be dealt with under HMRC’s “Code of Practice 8” that you will understand if you are in that situation.

It is the full enquiry where specialist advice is required. Most accountants offer fee protection insurance to cover their costs in this area.

What Happens and Reasons for Tax Investigations

tax investigations ukIt is important to note that an aspect enquiry into certain specific issues can develop into a full enquiry so even here great care must be taken.

The vast majority of enquiries begin because an HMRC Officer suspects that there is something wrong with the taxpayer’s return. In other words there is either something on the face of the return itself or that HMRC have received information suggesting an error.

Random enquiries are relatively unusual. However, it is dangerous to assume that an enquiry has started on a random basis notwithstanding the Accountant who helped make the return may not be able to identify a just cause.

Handling an Enquiry

Tax investigations’ process is laid down in the law but HMRC will generally override this with their own style. Thus, an experienced practitioner can determine what information must be disclosed. However, ultimately there could be a question of penalties where the issue of co-operation will be a major factor, assuming, of course, that the conclusion results in additional tax being due.

Most Important Issues

It is often forgotten that although the enquiry or tax investigation is into a particular year, the result can be used as a basis for detecting any possible problems that might be seen in previous years.

The potential outcome of any enquiry is therefore difficult to determine at the outset. Nonetheless, one expects the specialist tax consultant that handles the communications to provide some comfort to the taxpayer being investigated.

I have dealt with numerous tax enquiries over the years and will be happy to discuss any preliminary points on a “no obligation basis” for any unfortunate taxpayer that has received a detailed letter from HMRC.

Howard F Weintrob FCA CTA DipPFS has been a tax partner at several leading firms and now has his own consulting practice – Redwoods Accountancy Services Ltd that you can contact here >>>