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The new tax evasion laws are coming…here’s what businesses need to know

Proposed changes to current tax evasion laws aren’t set to take effect until two months’ time, however, it would appear HMRC is already stepping up its criminal investigations into corporate companies.

From September this year, failure to prevent tax evasion will become a criminal offence, as part of new legislation that is set to be implemented under The Criminal Finances Act 2017. 

In this article, David Gillies, Tax Partner, explores what these new measures mean for businesses, which have already seen HMRC publicise a number of criminal investigations into several high-profile companies.

Two months ago, The Criminal Finances Act 2017 was given Royal Assent. Within Part 3 of the Act, two new Corporate Criminal Offence provisions were created, one that applies to UK taxes and the other, foreign tax evasion offences.

These new tax offences, which apply to UK and non-UK tax (where there is a UK element), have attracted widespread publicity, not just because they carry major repercussions for businesses, but because they represent a huge change in strategy for the first time in ten years.

Making tax evasion prosecution easier

Essentially, the new measures are designed to make it easier for HMRC to prosecute companies and partnerships for tax evasion. More specifically, businesses will be liable:

  1. For criminal acts committed by employees, who encourage or assist tax evasion carried out by other individuals, such as customers and suppliers and;
  2. Even if senior management were not involved or were unaware of the activity.

While it’s widely reported that the financial and professional sectors and larger corporate companies are at greatest risk of being penalised by the new legislation, all businesses, regardless of the industry in which they operate are being advised to pay close attention to it. Key questions businesses might want to ask themselves right now include, ‘Are we prepared for a tax evasion investigation from HMRC?’ and ‘What measures, systems or procedures do we have in place to defend ourselves?’

‘Reasonable procedures’

Unfortunately, not all companies will fully tune into the new legislation until it directly impacts them. However, what many don’t realise is that this could actually jeopardise their own defence if they were to be investigated by HMRC, who only have to hold a suspicion in order to start taking action. In all cases, the only acceptable defence that can be presented by organisations is having ‘reasonable procedures’ in place. Failure to evidence such procedures can result in criminal prosecution and unlimited financial penalties.

According to guidance published by HMRC, ‘reasonable procedures’ include measures ranging from risk assessments and due diligence to communication and top-level commitment. (To see the draft guidance in full, click here).

We’re on the cusp of seeing one of the biggest shake-ups in tax evasion law. In just a matter of weeks, the actions of just one individual could see entire organisations being investigated for tax evasion and facilitators will be viewed in the same light as tax evaders. While there’s no way of knowing which companies will be investigated going forward, it is possible to make sure you’re prepared by making sure you have the right processes, or ‘reasonable procedures’, in place.

If you have any questions or want to find out more about the implications of the Corporate Criminal Offence provisions for your business, contact our tax specialists on 01905 777600 or mail@ormerodrutter.co.uk.


DSC4366About the Author

David Gillies specialises in private client tax, advising on personal tax with an emphasis on inheritance tax planning, trusts, tax efficient structuring for property portfolios and residence and domicile status. He has worked for “big 4” firms as well as smaller practices.


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.

 


 

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