Tax Investigation

HMRC Tax investigations are very stressful and difficult for the person under enquiry even if handled well. If handled badly a tax investigation can be unbearable and how they are handled affects many issues mainly relating to the actual amount of tax due and the penalties charged.

It should always be noted that HMRC rarely raise a tax investigation without believing that there is something wrong.

Before individuals and businesses are selected for a HMRC compliance check, HMRC conduct a rigorous exercise to try to ensure that the information that they are basing their belief that there is something wrong with the tax affairs of the person they intend to investigate.

There are a number of different forms of tax investigation but the main ones are:

Contractual Disclosure Facility
Check of VAT return and records
Check of Self-Assessment tax return
Check of Company Tax Return
Pay as you Earn Audit
National Minimum wage investigation

There are also a number of different units within HMRC from which enquiries emanate. The most serious sort of tax investigation is one where HMRC are considering prosecution. The first someone will know about this is either a letter to attend a meeting under caution or at worst a dawn raid.

Falling just below this in terms of severity is a letter from HMRC Fraud Investigation Service inviting someone to take part in the contractual disclosure facility. In all contractual disclosure facility cases HMRC have considered the matter for prosecution and if a full disclosure is not made of any tax liabilities HMRC are increasingly prosecuting people for not coming clean at the beginning of the tax investigation.

Fraud Investigation Service (FIS) also conduct other tax investigations, and again if the letter is from FIS then it indicates that it is a very serious tax investigation.

That is not to say that tax investigations from other HMRC departments are not serious. It is just that ones from Fraud Investigation Service indicate that HMRC believe that the potential issue is fraudulent or of a serious nature.

Control

The key to getting the best result with regards to a tax investigation is control. The best way to keep control is to engage with someone who has significant experience of dealing with tax investigations who will ensure that HMRC are provided with what the law allows and no more.

Managing the flow of information to HMRC and knowing how to tell HMRC if there are issues before HMRC find them is also important and all of this can have a significant impact in:

the length of the tax investigation
proving innocence (if HMRC’s belief that there is tax due is wrong)
the tax due
the penalty charged
the period which HMRC believe any errors have occurred

Most HMRC tax investigations follow a format.

Most people (including accountants) just assume that HMRC are entitled to anything they ask for. They get a request for information and rush round in a panic to provide it. Our experience is that HMRC often ask for significant amounts of information in a tax investigation which they are not legally entitled to. Where this information is provided, it leads to many additional questions which would not have been asked if HMRC had been restricted to what the law says they can have. If nothing else this leads to costs and time delays that were not needed.

Outside of prosecution work HMRC investigations tend to follow three paths:

Contractual Disclosure Facility

HMRC will send a letter inviting someone to take part in this which can either be declined or accepted. If declined HMRC will conduct their own enquiries and are always looking to move this to prosecution if they uncover evidence of tax fraud. If accepted, then generally there will be a meeting with HMRC. As part of acceptance the individual agrees that they will appoint a professional advisor to do a report of the tax irregularities. When that report is sent to HMRC it is vigorously tested and if HMRC are not satisfied with the contents they will conduct their own enquiries and if the report is found to be materially incorrect they will consider prosecution.

Find out more about Contractual Disclosure Facility

Normal Tax Investigation

HMRC will write and explain that they are doing a compliance check and ask for information. Sometimes they will also ask for a meeting. They will examine the records and then engage in communication about areas where they think that there is something wrong. When figures are agreed, they will then ask various questions as to why the errors occurred and base the period of assessment and penalties on this. Usually these are settled by agreement. If agreement cannot be reached, then the matters in dispute end up before the Tax Tribunal.

Find out more about Income Tax Compliance and Tax Tribunals

HMRC Visit

These are in effect tax investigations where HMRC visit the business premises and look at the records on site. They can be arranged in advance or HMRC can turn up with an authority which gives them a legal entitlement to visit (which can be refused. In general, these sorts of visits relate to VAT, PAYE, National Minimum Wage or Cross Tax Enquiries.

How Can We Help?

Gilbert Tax understands that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.

Gilbert Tax is a firm of tax advisors who specialise in resolving people’s problems with HMRC. We have extensive expertise in dealing with all forms of tax investigations and tax disputes as well as with taking matters to the Tax Tribunal where agreement cannot be reached.

Gilbert Tax deal both directly with the individual who is under enquiry and also work with many firms of accountants supporting them in dealing with HMRC disputes and advising them on how to handle HRMC to get the best result.

The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.

Gilbert Tax are none judgemental and rigorously defend your position within the scope and parameter of the law. We take control and manage the process to minimise the interruptions that any form of tax investigation causes to an individual’s life and business.