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Ten top tips for surviving an HMRC tax investigation

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:

  1. The wrong amount of tax that’s been paid.
  2. 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:

tax

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 hello@ormerodrutter.co.uk. 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 hello@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.*

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 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.

Latest in HMRC campaigns targets employers not paying minimum wage

All employees have a legal right to the national minimum wage.

Although most employers pay at least the national minimum wage, there are several common mistakes which mean that employees don’t get what they’re entitled to.

HMRC campaigns offer the best possible terms to those who voluntarily come forward to bring their tax affairs up to date. They are now providing employers with the opportunity to check that they are adhering to national minimum wage laws.

The newly launched National Minimum Wage Campaign is the latest in a series of HMRC campaigns and encourages employers who have not been paying their employees national minimum wage, or have made any errors with this, to come forward voluntarily, disclose any mistakes they may have made and pay their employees any arrears owed.

Voluntarily disclosing national minimum wage arrears through the campaign will result in more favourable terms. Those who do not do this and are caught by HMRC face penalties of up to 100% of what they owe (up to a maximum of £20,000 per employee) and will be publicly named on a list of employers who do not pay national minimum wage.

 

What are the National Minimum Wage rates?

Current rate Rate from 1 October 2015
Apprentices (aged 16 to 18 and those aged 19 or over in their first year of Apprenticeship) £2.73PH £3.30PH
Under 18 £3.79PH £3.87PH
18 to 20 £5.13PH £5.30PH
21 and over £6.50PH £6.70PH
Accommodation offset £5.08PH £5.35PH

As announced in the Summer Budget, the new National Living Wage of £7.20 per hour for over 25s will also come into effect in April 2016.

 

If you’re considering making a disclosure under the National Minimum Wage campaign or any HMRC campaigns, you will need to notify HMRC and complete a disclosure form. It is highly recommended that you seek professional advice to guide you through this process.

HMRC have released a webinar to help employers ensure you are paying at least the national minimum wage. Watch their pre-recorded webinar here: https://twitter.com/HMRCbusiness/status/580678155150757888

Let Property Campaign brings in £7.9 million in additional landlord tax

HM Revenue and Customs have been targeting UK landlords with the Let Property Campaign since autumn 2013, in part of a series of campaigns in their continued tax avoidance crackdown.

UK Landlords who make an income from residential properties at home or abroad (including holiday homes, specialist landlords and those above the ‘Rent a Room Scheme’ threshold) have been encouraged to disclose any previously undeclared tax under the Let Property Campaign.

The campaign offers more favourable terms to those who make a voluntary disclosure.

In 2014, HMRC reports that around 40,000 landlords who had failed to come forward were sent a letter which gave them 30 days to bring their tax affairs up to date. However, those who made a ‘prompted disclosure’ as a result of these letters were not offered the same favourable terms.

Ignoring the letter risks penalties of up to 100% of the unpaid tax liabilities and up to 200% of offshore related income. HMRC can also conduct an investigation and in certain cases the result may be criminal prosecution.

It is suspected that many buy-to-let landlords with undisclosed rental profit have misunderstood the rules. The most common misconception is that all mortgage repayments can be offset, however only the interest proportion is permitted.

Even if landlord tax is undeclared or under-paid because of an error or misunderstanding, it’s important that they come forward to bring their tax affairs up to date as soon as possible.

It is reported that HMRC have raised £7.9 million in additional tax as a result of the campaign so far.

Many letting agents have also received statutory notices and are legally obligated to give HMRC access to their landlord records. HMRC can also access records held by the Land Registry to detect undeclared income. Their software is getting more sophisticated and the records they can access is increasing.

 

The Let Property Campaign is one of a series of campaigns targeting different sectors and industries, and with an increase in data gathering the message is clear – it’s better to come forward and get your records in order now, rather than trying to hide.

For more information about the penalties that apply, Download our free guide to Landlord Tax Penalties.

 

Landlords with undeclared or under disclosed rental income, who have not yet been contacted by HMRC, are strongly urged to bring their records up to date as soon as possible. Favourable terms and affordable repayment plans can often be negotiated.

If you would like to discuss this further, or you have received a letter from HMRC about the Let Property Campaign, please contact us to speak to Anthony Middleton.

Tax Investigation: What does the taxman know about you?

HMRC are stepping up their tax avoidance crackdown, and they’ve got a hi-tech weapon to help them do it.

Only a few years ago tax investigators faced many months of preliminary information gathering before deciding whether a taxpayer was liable to a tax investigation. Now they can do this in seconds.

HMRC has invested over £80 million in developing their Connect software, a powerful computer programme which accesses databases of personal and commercial financial information and matches findings to tax returns to flag discrepancies.

The system is able to link a tax payer to property addresses, companies, partnerships and trusts, accessing more than 30 sources of data which currently fall within its scope – and now its reach is increasing.

 

It is reported that from next year Connect will become even more powerful, as HMRC gain access to files held by banks and financial firms based in British overseas territories. From 2017, Connect is set to go global, with access to data in 60 countries.

HMRC use Connect to find undeclared tax and have reportedly secured an additional £3bn in tax since its launch in 2008.

Access to additional data will increase their ability to identify activities or assets which are not being properly taxed. For example, by accessing Land Registry databases and mortgage information, Connect can identify the price you paid for a property and flag areas where capital gains tax is potentially owed.

We have already seen HMRC target online marketplaces for their records recently and as Connect gets more powerful they will be able to access this data quicker, cross-referencing it with your bank account and other records to identify discrepancies. If you become the subject of an investigation, Connect could even examine your social media activity for evidence of spending, travel or ownership of property and assets.

 

The strong message from HMRC is that it’s much better to get your records in order now, rather than try to hide. Penalties are based on taxpayer behaviour, so if you voluntarily disclose an issue your penalties are likely to be much lower than if HMRC discover it and approach you.

HMRC campaigns are also in place to give taxpayers the opportunity to bring their records up to date under the best possible terms. Businesses who accept card payments and landlords who collect income from residential property are two of the current targets being encouraged to voluntarily disclose.

 

If you have any concerns or you need help staying on top of your taxation matters, contact us today. We can offer advice on planning for the future of your business and assistance in dealing with income tax (self assessment), corporate tax, capital gains tax, inheritance tax, stamp duty, VAT and PAYE. Insurance against tax investigations can also be arranged.

Call us on 01905 777600 to arrange a free initial consultation.

Landlord tax the latest target in tax avoidance crackdown

Landlord tax is the latest target of a HMRC campaign to collect undeclared income, as part of a series of campaigns running since 2007 in their continued tax avoidance crackdown.

HMRC campaigns are aimed at groups of taxpayers where they suspect a higher risk of tax error. Since introducing them in 2007, HMRC have reportedly collected over £596 million in tax from people making voluntary disclosures, and over £338 million from follow up activities.

The legal sector have recently been targeted with the Solicitor’s Tax Campaign, and previous campaigns have been aimed across the full spectrum of businesses and professions, including healthcare and doctors, electricians, plumbers and offshore accounts and assets.

The current Let Property Campaign is an opportunity for landlords to bring their tax affairs up to date and declare previously undisclosed income to the tax authorities under the best possible terms.

If you rent out property in the UK or abroad you may be able to take advantage of the Let Property Campaign to bring your tax affairs up to date.

Find out more by downloading our Let Property Campaign Fact Sheet.

If you are considering making a disclosure, or have received a letter from HMRC regarding the Let Property Campaign, we strongly recommend that you obtain professional advice.

If you are a letting agent who is concerned about how this may affect you or your clients, or you have been approached by HMRC, we can help.

For more information, or for a free initial consultation, please contact us to speak to Anthony Middleton.

Budget 2015: ‘death of the tax return’ – what does it really mean?

In yesterday’s budget speech chancellor George Osborne announced that he will abolish the “complex, costly and time consuming” tax return that 12 million people in the UK have to fill out each year.

In a move that Mr Osborne described as “a revolutionary simplification of tax collection”, the ‘death of the annual tax return’ has grabbed headlines, but what does it actually mean?

According to the Treasury, the annual tax return as we know it will be completely replaced by ‘digital tax accounts’ by 2020. Under the new system, individuals and small businesses will submit their accounts online throughout the year via computer, tablet or smartphone.

The new online system will bring together information about earnings, savings and pensions and “new data from third parties”, as well as linking to accounting software and online bank accounts to feed in data automatically. Taxpayers will be able to submit their information regularly and see how their tax is calculated, to give an overall picture of their tax affairs in real time.

One of the main changes will be the end of the annual tax bill, as individuals and businesses will have the option to “pay as you go” throughout the year, with payments being calculated based on real time information rather than last year’s figures.

The ‘death of the annual tax return’ promise may be a bit misleading, as you will still need to maintain accurate tax records throughout the year, but the new system is designed to make the process simpler.

Many of those with simple tax affairs, such as higher-income families, will benefit from the new system. Since last year, families where one parent earns more than £50,000 have had to fill in a self-assessment return, since child benefit payments are reduced above this threshold, but under the new system these payments should be calculated automatically.

It is expected that five million small businesses and 10 million individuals will begin to use the new system in early 2016, and that by 2017 the first group with simple tax affairs will no longer have to complete an annual tax return. The system should be completely rolled out by 2020 by which time businesses should be able to link their accounting software to their digital tax account.

HMRC said it will publish a full timetable later in the year setting out the policy and administrative changes needed to implement this reform.

Ormerod Rutter Budget Report 2015

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