Have you been notified by HM Revenue and Customs (HMRC) that they’re going to look into your tax affairs and aren’t sure what’s next? Or perhaps you’re not being investigated, but would like to establish a clearer picture of what’s involved, should you ever be investigated?
Some tax inspections can be short and relatively straightforward, while others can be long, complex, costly and involve going down several different routes. Here are our ten top tips for dealing with HMRC tax investigations.
TIP #1: Check the dates
If HMRC has contacted you to say they need certain details from you by a particular date, check whether or not the time period they’re requesting the information from is still valid.
HMRC have certain time scales they can enquire within and if their requests fall outside of these timescales then, unfortunately, they’re out of time and will have to close their enquiry.
TIP #2: Take care when divulging information
If you own up to a problem, then it’s important you do it in the right way. HMRC are usually looking to clarify two key things when they contact taxpayers:
- The wrong amount of tax that’s been paid.
- Why the wrong amount of tax has been paid (as they want to charge a penalty).
Silly error (reasonable care)
Penalties are all tax-geared and based on the behaviour that led to the error. If you’ve made a silly mistake, for instance, taken some bad advice, but have done everything you possibly can to get your tax return right, then you may not be charged a penalty. If you are, then it will be most probably be around 15% of the tax that’s due.
Deliberate error (no reasonable care)
However, if you’ve not made a careless error and have not taken reasonable care to get your tax return right, then you could wind up with a penalty of up to 70%.
The current penalty rates are as follows:
TIP #3: Be helpful
As mentioned in the tip above, it’s important that you are as transparent, open and honest with HMRC as possible. When responding to valid questions from HMRC, you can actually score yourself some brownie points with them if you’re giving, helping and telling throughout the course of your investigation.
TIP #4: Seek expert advice
If you haven’t got an accountant, then it might be worth you appointing one to help you with your investigation. Not only will they be able to take the pressure of the enquiry away from you, so that you can focus on your business, they know the processes, not to mention the terminology and your rights, inside out. Not all accountants have experience of enquiry work so make sure you ask the right questions. Here at Ormerod Rutter we have experts who have dealt with many tax investigation and are capable of guiding you through an investigation.
TIP #5: Set the pace
Always try and control the pace of your enquiry by responding ahead of deadlines. Don’t leave things to the last minute. If, for some reason, you can’t meet a particular deadline because you’re on annual leave or might be going through a particularly busy period, then at least speak to HMRC. They are fairly flexible, will appreciate your cooperation and should be able to give you an extension.
TIP #6: Check you’ve got insurance
Many accountants and the Federation of Small Businesses (FSB) offer tax investigations insurance. For an annual fee you’ve got peace of mind that your agent’s costs are paid for, should you suddenly be hit with an enquiry. For details on insurance policies we offer or to receive a quote please call 01905 777600 or email email@example.com. It is important that you understand your policy and this is something we can talk you through.
Note: If you have such insurance in place, it’s important you notify your insurance company straight away if you’re going to be investigated. Failure to do so could invalidate your claim.
TIP #7: Think penalties
Ultimately, HMRC want to issue you with a penalty, which you’ll have to pay on top of the tax that you already owe, plus interest.
It’s therefore useful to always make sure HMRC’s penalties are the back of your mind if you’re being investigated, as every single thing you say and do from the moment you start corresponding with them, will impact the overall penalty you receive.
TIP #8: Pick up the phone
While communicating with HMRC might appear daunting, it can help you establish a clearer picture of what’s required from you and how your investigation’s progressing. Always chat to the inspector who’s working on your case, they’ll be able to explain the reasons why there’s an enquiry or why they’re going down a particular route with you.
TIP #9: Only meet HMRC if you want to
Many people think that if HMRC has requested to meet them then they must meet them. However, they’re under no legal obligation to meet with HMRC. Some taxpayers attend, some don’t and some ask their accountant (or agent) to go for them.
TIP #10: Don’t be an ostrich!
As tempting as it might be to bury your head in the sand and deal with your tax investigation another day (particularly if you’re busy), this is the worst thing you can do. Co-operation is key to reducing and, where possible, eradicating the risk of a penalty coming your way, it’s also the answer to getting your enquiry completed as soon as possible.
Got any questions or want to find out more? For more information or to discuss your tax investigations with one of our tax investigation specialists, contact us on 01905 777600 or firstname.lastname@example.org.
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.