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My taxes are being investigated! What’s going to happen next?

My taxes are being investigated! What’s going to happen next?

Tax investigations can happen to businesses of all sizes, whether you’re a sole trader who’s been running for a year or a corporate enterprise with multiple offices that have been established for two decades. Individuals can also receive an enquiry letter from HMRC too.

 Here, our Tax Inspection Manager, Anthony Middleton, lifts the lid on what businesses and their owners can expect when they’re being investigated by HM Revenue and Customs (HMRC), as well as the steps they can follow.

All tax investigations, whether that’s PAYE, Corporation Tax, Income Tax or individual Self Assessments, are carried out by HMRC, with most companies or owners first finding out that their tax affairs are going to be scrutinised via letter. In some circumstances, HMRC will call organisations to tell them they’re going to investigate them, which tends to mainly be for VAT-related enquiries.

There are formal notices and informal requests for information, the details of which we’ll cover in a separate article at a later point. Businesses will typically be given 30 days’ notice to respond to any requests for information. If they’ve received a telephone call, then a tighter schedule may be involved. However, in all situations, it’s up to the company that’s being investigated to decide whether or not what’s being requested is manageable in terms of their own timescales. Early discussions with HMRC to amend timescales are preferable.

There are two different routes HMRC can choose to go down. They can either look at a whole return, which is known as a Full Enquiry, or a single item or area of a return, referred to as an Aspect Enquiry. 

Regardless of the route that’s being taken, investigations tend to follow a similar process, which should ideally be dealt with as follows:

STEP 1: Notify your accountant

This may seem like a really obvious point, but companies or individuals who have an accountant (or ‘agent’ in HMRC’s language), don’t always tell them that they’re going to be investigated. They assume their accountant knows everything, but this isn’t always the case. For instance, HMRC, might write to the company about three taxes, but only write to their accountant about two as they only have the authority to discuss matters where a relevant authority has been signed. Never assume that your accountant knows that HMRC has been in touch with you.

STEP 2: Analyse what’s required

So, now that you know HMRC want to look into your tax affairs, the next step is to ascertain exactly what is it they’re after. What information are they requesting to see? How can you help them answer the question(s) they’re posing? And is what they’re asking for accurate?

It’s worth noting here that the type of tax that’s being explored and how many taxes that are being investigated will impact the length of the investigation.

STEP 3: Don’t be afraid to say ‘no’

Obviously, it’s important that you’re as co-operative as possible with HMRC and provide them with the details they require within the given timescales (usually within 30 days). In fact, it’s a common fact that companies that give, help and tell during the course of their enquiry are more likely to receive reduced penalties if errors have been made and additional tax is due.

However, co-operation aside, there are instances, when HMRC do ask for information in Opening Letters that they aren’t necessarily entitled to know about at that given time.

For example, you might be a limited company and you’re being asked in your Opening Letter to share all of your personal bank statements as a company director. Usually, this is something HMRC are actually not entitled to see at this stage. It’s essential that their requests for information are made at the right time and that they’re not just simply ‘fishing’ around for information. If you’ve followed the advice in Step 1 and notified your accountant, then they’ll be able to advise you on what can and can’t be divulged at this stage. Alternatively, you may want to seek professional help from a tax investigation specialist.

STEP 4: Provide what’s required

It’s important that you do provide HMRC with the details they’re entitled to see within the given timescales. Ideally, you should produce the information that’s been requested of you through your accountant.

STEP 5: Be patient (and potentially expect to hear from HMRC again)

HMRC will analyse the information you’ve shared with them and, if they have any further questions or if there are any causes for concern raised by what you’ve divulged, then you’ll receive another letter from them.

STEP 6: If there are no problems, look out for your Closure Notice

Assuming everything’s ok and your tax affairs all add up, you’ll be issued with a Closure Notice that confirms your enquiry is over and no additional tax is due. End of investigation.

STEP 7: Check HMRC’s calculations

When a Closure Notice is issued, and HMRC issue revised assessments or calculations based on their findings, be sure to check them. These computations should be correct, but they can sometimes be wrong. Make sure any adjustments have been entered correctly, and the tax rates that have been used are correct. In certain circumstances, it can be difficult to amend them at a later date or even get them revised.

STEP 8: If there are any issues, be prepared to discuss them

If HMRC do identify any problems, there are different ways you can choose to progress your enquiry. You might want to call a meeting with them, which you can attend with your accountant or ask your accountant to attend on your behalf. The aim of this meeting should be to ascertain what the issues are that have been identified and what HMRC requires going forward.

Hopefully, by scheduling the meeting and discussing your enquiry face-to-face, any queries can be quickly identified and ironed out and you’ll hopefully receive your Closure Letter quickly. HMRC often request a meeting to see company directors or representatives. There’s no legal requirement to attend a meeting with them. All meeting requests should therefore be discussed and carefully considered.

STEP 9: Weigh up your options

If your further communication with HMRC has resulted in you having a disagreement with them (unfortunately this can happen), then now’s the time to weigh up your options.

More often than not, businesses continue to debate the issue(s) at hand for a number of months, which finally results in HMRC issuing a Closure Notice through a Decision Letter.

OPTION 1 – Internal review

If you don’t agree with the Closure Notice, then you can ask for an Internal Review to be carried out by a HMRC employee who wasn’t involved in the original investigation. There’s no additional cost involved in requesting an Internal Review. However, you do need to ensure it’s done within the correct time parameters.

OPTION 2 – Alternative Dispute Resolution (ADR)

Alternatively, you can go to ADR, where members of HMRC’s dedicated ADR team act as a mediator between the taxpayer, accountant and HMRC, and look to identify if there’s a way around the particular problem. It could be that there’s been a genuine mistake or information has simply been misinterpreted. This can be a sensible option to hopefully avoid the need to go to a Tax Tribunal.

OPTION 3 – Tax tribunal

Beyond ADR, there are two tax tribunals (1) First Tier (for the vast majority of enquiries) and (2) Upper Tier (for more complex enquiries, as well as First Tier Tribunal appeals).

There are four different types of First Tier Tribunals:

  1. Paper (can be conducted informally, so there’s no need for the taxpayer to attend).
  2. Basic case.
  3. Standard (for middle of the road investigations).
  4. Complex

Most tribunal hearings are chaired by legally qualified tribunal judges, who often sit with specialist, non-legal members – for example, doctors, accountants, surveyors or those with particular experience of disabilities or the armed services – depending on the subject matter of the hearing.

It’s worth bearing in mind that the longer your investigation takes to sort, the greater the cost implications, which could include appointing a solicitor or tax barrister at this stage. You may need to consider the commerciality of continuing with an enquiry, even if you disagree with HMRC. Tribunals can be extremely time consuming to prepare for and, as a result, expensive.

The scale and complexity of tax investigations do vary from business-to-business and individual-to-individual however, by following this best practice advice, taxpayers and their businesses stand a much greater chance of navigating their way around the investigation process as efficiently and effectively as possible. Always consider penalties when responding to HMRC as they’re tax geared and can be reduced if you fully co-operate with HMRC.

For more information or to discuss your tax investigations with one of our tax investigation specialists, contact us on 01905 777600 or mail@ormerodrutter.co.uk.


DSC6529 (1)About the author

Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.

 


 

What is the Let Property Campaign (LPC)?

In 2013 HMRC launched the Let Property Campaign (LPC) which allows landlords to declare previously undeclared property income or gains. To date over 10,000 landlords have used this voluntary disclosure scheme. This disclosure often leads to a lower penalty of 0-20% of lost HMRC revenue depending on case by case circumstances.

The LPC is aimed for individuals that own residential properties and does not apply to businesses or commercial properties. Once a voluntary disclosure has been submitted landlords have up to 90 days to pay the tax due.

HMRC is cracking down on landlords with undisclosed property income or gains. If a landlord is found to be evading tax and not made a disclosure, they will be fined up to 100% of the tax due and may face criminal proceedings.

HMRC are using an increasing number of channels, such as the Land Registry and Deposit Protection Schemes, for their investigations. Therefore, it is important for landlords to ensure there are no financial irregularities in their finances.

Once HMRC opens an investigation, a voluntary disclosure will no longer be allowed. The LPC does not yet have an end date by which time disclosures should have been made but it will not last forever.

HMRC are introducing severe penalties elsewhere in the tax regime which will be up to 200% of the tax that becomes due. The disclosure will close at some stage and therefore you should act now and speak to a tax specialist if there is a disclosure to be made.

If you have a question or would like more information about LPC then please contact Anthony Middleton for expert advice at anthonymiddleton@ormerodrutter.co.uk or 01905 777600.


DSC6529 (1)About the Author

Anthony specialises in guiding a taxpayer through the complex process of an enquiry by HMRC, mitigating tax and penalties wherever possible.

 


 

Spring Budget 2017: how will the announcements affect you?

Following the UK’s historic vote to leave the EU, and with Prime Minister Theresa May poised to trigger Article 50, Chancellor Philip Hammond presented the Spring Budget against a backdrop of economic uncertainty. Figures from the Office for Budget Responsibility revealed that UK economic growth is now expected to reach 2% this year, before falling to 1.6% in 2018.

The Chancellor announced a range of significant measures for businesses and individuals, including a support package for firms in England affected by the business rates revaluation and the announcement that unincorporated businesses and landlords with turnover below the VAT registration threshold will have until 2019 to prepare for quarterly reporting.

Also unveiled in the 2017 Spring Budget was an increase in the main rate of Class 4 national insurance contributions (NICs) to 10% in April 2018 and a reduction in the tax-free dividend allowance, which will fall from £5,000 to £2,000 in April 2018.

Our Budget Report provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the more sensational measures and offers detail on the less-publicised changes that are most likely to have an impact upon your business and your personal finances.

Additionally, throughout the Report you will find handy tips and ideas for practical tax and financial planning, as well as an informative 2017/18 Tax Calendar.

Don’t forget, we can help to ensure that your accounts are accurate and fully compliant, as well as suggest strategies to minimise your tax liability and maximise your profitability.

Click the link to download the Spring Budget 2017 Summary.

Have a question on the Spring Budget 2017? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

*Since the Budget the government has now made a U-turn and will not be increasing the National Insurance Contributions from the self-employed. This was overturned as it went against one of the main Conservative manifestoes promises of not raising taxes. 

Making Tax Digital Update

The UK government’s response to the Making Tax Digital consultations has finally been published and has broadly been welcomed by business leaders and the tax profession.

With the exception of a very few, it is expected that all businesses will be required to hold their accounting records digitally and submit quarterly updates to HMRC. In addition to this, an end-of-year reconciliation will be required to ensure all financial activities have been recorded.

Criticisms of the report have focused on the short timeline for further consultations for the legislation and also the cost of transition during the first year.

The government will continue to consider issues contained in the report, such as the exemption threshold, so the features in the report are not a finalised list of changes.

Here is a list of some of the proposed decisions for Making Tax Digital:

  • Businesses will be able to continue to use spreadsheets for record-keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business – this is likely to involve combining the spreadsheet with software
  • Businesses eligible to use ‘three line accounts’ will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
  • Free software will be available to businesses with the most straightforward affairs
  • The requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally
  • Activity at the end of the year must be concluded and sent either by 10 months after the last day of the period of account or 31 January, whichever is sooner
  • Charities (but not their trading subsidiaries) will not need to keep digital records
  • For partnerships with a turnover above £10 million, Making Tax Digital for Business is deferred until 2020

You can view the full report here

Due to the overwhelming response to the initial consultations, the government is taking more time to consider issues raised alongside fiscal impacts.

Have a question on Making Tax Digital? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and taxes can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial. We pride ourselves on having big firm capabilities and a family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions from use of this information.*

VAT: Flat Rate Scheme Changes

HMRC has announced that, as from the 1 April 2017, all businesses using the Flat Rate Scheme or intending to use the Scheme will have to consider (in addition to the existing conditions) whether or not their VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum, or proportion thereof (ie, £250.00 per quarter or (£83.33 per month).

If this criteria is met then the business will be regarded as a “limited cost trader” and MUST apply a fixed Flat Rate percentage of 16.5% to its’ VAT inclusive turnover.

All businesses using or considering using the Flat Rate Scheme should now review their status.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600

Pre VAT registration input tax claims – HMRC approach challenged

Have you been affected by HMRC seeking to restrict input tax claims on pre VAT registration costs?

A newly VAT registered fully taxable business has historically been allowed to fully recover VAT incurred in the following circumstances:

  • on services incurred up to 6 months prior to VAT registration and that have not been supplied on to a third party
  • on stock and assets purchased up to 4 years prior to VAT registration, to the extent that the goods or assets are still on hand at the date of VAT registration and are being used by the business (an apportionment may be required if some have been sold).

However, HMRC has recently been seeking to restrict VAT on qualifying goods and services by attempting to view the “use” of such goods or services over their useful, economic life, and dis-allowing, proportionately, any “use” of the goods, assets or services prior to VAT registration.

A number of businesses have received Assessments of VAT or have been instructed to amend their VAT returns.

This approach has been found to be incorrect and inconsistent with EU legislation and HMRC has now issued Revenue and Customs Brief 16 (2016) confirming that taxpayers who have been assessed or had their input VAT restricted in this way may now seek a refund.

Correcting Errors – Making a Claim?

If you need help with making an input tax claim, please contact us now.

Be warned there are time limits in place to correct errors, which are as follows:

  • 4 years from the end of the VAT period in which any adjustment was made; or
  • 4 years from the end of any VAT period Assessed by HMRC.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600.

The 2016 Autumn Statement: how will the announcements affect you?

On 23 November Chancellor of the Exchequer Philip Hammond gave his Autumn Statement to Parliament.

Our summary download provides an overview of the key taxation, business and financial measures announced in the Autumn Statement which could affect you and your business.

Significant announcements include an increase in the National Living Wage and National Minimum Wage rates, the implementation of the business rates reduction package and a freeze on fuel duty for the seventh consecutive year.

The Chancellor also announced a major change to the way fiscal events are scheduled; 2017 will see the final Spring Budget, as from that point on the main Budget will be held in the Autumn.

We supply far more than just the traditional tax and compliance services, and can advise on a comprehensive range of strategies designed to help you and your business.

For advice on any of the topics covered within the Autumn Statement, and how they may have an impact on your business or personal finances, please give us a call on 01905 777600.

Click on the link below to download
Autumn Statement 2016 Summary

The Making Tax Digital consultation has ended…

On 7 November 2016 the Making Tax Digital (MTD) consultations came to an end. First outlined in the 2015 Budget, it is a move to transform the tax system to make it the ‘most digitally-advanced tax administrations in the world by 2020.’

The controversial plan is set to raise £1bn in additional tax revenue but there is criticism about the potential costs and administrative burden for businesses and individuals.

The six consultations that have taken place are:

  1. Bringing business tax into the digital age
  2. Simplifying tax for unincorporated businesses
  3. Simplified cash basis for unincorporated property businesses
  4. Voluntary pay as you go (PAYG)
  5. The tax administration consultation
  6. Transforming the tax system through the better use of information

There is also a separate overview for small businesses, self-employed and smaller landlords.

The consultation was initially planned to begin in April 2016, but was delayed until later in the year. With the reforms set to be introduced in 2018 businesses and individuals want to know how this will affect them going forward.

What we do know is that all unincorporated businesses and landlords with a turnover of less than £10,000 a year will be exempt.

Additionally, HMRC has said that it will delay the start of MTD for ‘some other small businesses’ to give them enough time to get used to the digital record keeping and submitting of quarterly updates. HMRC then goes on to say that they expect all tax returns to be done digitally by 2020.

With feedback from the consultation due before the end of January 2017, we are actively looking at any changes that may be implemented; and are here to help you during this transition.

If you have any questions or concerns about MTD please feel free to contact us at mail@ormerodrutter.co.uk or calling the office on 01905 777600.

Have you renewed your Fee Protection Insurance?

For those of you who have joined our Fee Protection Insurance scheme against the costs of dealing with an enquiry by the tax authorities, you should have received a renewal letter with the costs of the scheme for the next twelve months, and paid to rejoin.

The renewal date was 31 October 2016.

However, it is not too late to act if you haven’t already. Simply check the quote that should have been sent out to you and make the relevant payment or, if you cannot find the relevant paperwork, ask for a revised renewal quotation to be sent to you.

If you are not familiar with our fee protection insurance, here is a brief overview of the service.

“Tax investigations can be intimidating, and with HMRC growing increasingly more powerful, an investigation into your affairs is more likely than ever – even if you’ve paid all your tax. Although we work hard to keep your tax affairs in order, compliance doesn’t necessarily keep you safe.

If you are unlucky enough to have your business investigated by HMRC then our expert team are on-hand to guide you through the process. Our knowledge and experience of dealing with HMRC at all levels will ensure you achieve the best possible outcome. Even if your records are in order and you have paid all your tax, the cost of preparing and presenting your case for investigation can be an unwanted and expensive overhead, which also why we also offer our clients Fee Protection Cover.”

Fee protection covers you for the costs of any compliance check we deal with on your behalf, regarding Income Tax, Corporation Tax, PAYE, National Insurance, CIS, IR35, VAT, National Minimum Wage, IHT and Child Tax Credit enquiries.

A copy of our service summary can be found here

The cost of our Fee Protection scheme is significantly less than the cost of a tax investigation. Is it really a risk worth taking?

If you have any questions about Fee Protection Insurance please feel free to contact us on mail@ormerodrutter.co.uk or by calling the office on 01905 777600.

HMRC targets ‘late’ taxpayers with text message warnings

UK taxpayers and Small and Medium-sized Enterprises (SMEs) have reported that they have been receiving ‘threatening’ text messages from HMRC.

According to reports, the tax authority has been using new means to inform businesses and individual taxpayers that they are being ‘monitored’ – and to request that they pay debts.

A study has revealed that the text messages are successfully increasing payments among ‘late payers’.

According to a HMRC report, text messages warning taxpayers that they “may face penalties” for late payments have increased payment rates by 7 per cent, whereas those informing taxpayers that they are being ‘monitored’ have raised payments by 3.8 per cent.

Furthermore, the number of ‘late payers’ hitting their payment deadlines after receiving these, or other HMRC text messages, has increased by 50 per cent, according to the tax authority.

However, the news comes at a confusing time after UK crime watchdog Action Fraud reported a rise in complaints of ‘bogus’ telephone calls, text messages and emails from fraudsters, purporting to be from HMRC, and requesting similar action.

A police spokesperson told Action Fraud: “Fraudsters will use various hoaxes to try and scam money out of people so please be vigilant about any unsolicited phone call – remember that the bank or police or HMRC would never ask for your PIN over the phone or send a courier to collect cards or cash”.

Only a third of taxpayers happy with HMRC services, says study

According to a new study, only a third of individual taxpayers say that they would describe HMRC as ‘fair and efficient’.

The statistics come from HMRC’s own data, after the tax authority carried out a satisfaction survey among personal and business users.

Following recent criticisms over HMRC’s diminishing telephone services in the wake of Making Tax Digital (MTD), just 45 per cent of Small and Medium-sized Enterprises (SMEs) told the tax authority that they would describe its telephone services as ‘good’.

Only 43 per cent of individual taxpayers agreed.

Furthermore, more than half of individual taxpayers and 43 per cent of SMEs added that they thought HMRC did not ‘have the right systems in place’ to sufficiently prevent taxpayers from making tax return errors which provoke ‘unnecessary investigations’.

Experts predict that thousands of taxpayers fall victim to making ‘honest mistakes’ on their tax returns every year – which inevitably results in HMRC conducting thousands of investigations.

Filling out tax returns can be a complex and lengthy process and a tax investigation can be provoked only too easily – especially when access to HMRC telephone advisers is growing increasingly limited.

If you need help accurately completing your tax return or you need advice about tax investigations, contact us to arrange your free initial consultation today.

Have HMRC got you in their sights?

Is a visit from the taxman a risk you can afford, or are prepared to take?

HMRC are more determined than ever to ‘claw back’ unpaid tax and ensure all tax due is paid. Millions of pounds have been allocated to target tax evasion and avoidance and the number of people being investigated by the taxman has doubled in one year.

Every year HMRC investigates hundreds of thousands of individuals and businesses in the UK. A tax investigation could happen at any time and everyone is at risk.

HMRC’s increased aggressive stance means more and more innocent businesses and individuals are likely to be investigated. Even if you have done nothing wrong, you are still at risk. HMRC don’t need a reason to investigate you and they can investigate anyone at any time.

You could be at greater risk than you think

Anyone who submits a tax return faces a real threat. HMRC are using a piece of highly efficient software which is accessing and trawling through your financial information right now.

The ‘Connect’ system has access to vast databanks holding information about every taxpayer and their businesses, income, assets and transactions.

From 2017, Connect will go global, with access to further data in 60 countries. It can identify tax discrepancies in seconds which can trigger a tax investigation.

A tax investigation could cost you – even if you’ve done nothing wrong

If they investigate you, HMRC will expect your professional adviser to explain how the computations have been prepared and how the amount of tax payable has been derived. As your trusted adviser, we will also be best placed to support and advise you through the enquiry process and to deal with any specific issues that arise.

Few individuals or businesses have budgeted for the cost of professional services should an investigation arise. However, if you are investigated it could be a substantial upfront cost, and for many this is more than they can afford at short notice.

Protection is available

We recommend that all our clients consider subscribing to our expert Fee Protection Service. If HMRC target you, we are on hand to guide you through the process, and by investing a small amount in our protection service now, you can rest assured that the professional fees are covered too.

A small cost now could save you thousands of pounds in the future.

If you’re currently an Ormerod Rutter client, you can request a free quote online now. If you’re not a client but would like to discuss this further, please contact us to speak to Anthony Middleton.

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