HM Revenue & Customs (HMRC) have the power to enquiry into a Tax Return and look at all entries or just specific ones. It should be clear from the initial letter which approach is being taken. There are statutory time limits within which HMRC can enquiry. However, in certain circumstances HMRC can enquiry into a Tax Return outside of the normal time limits.
What To Do If Your Receive An Enquiry?
If you have a tax adviser you should make contact with them as soon as you can after receiving the initial letter from HMRC. Your Adviser should also have received a copy of the initial enquiry letter. If you do not have an adviser then you may wish to consider whether you need professional assistance in dealing with HMRC.
HMRC will impose a non-statutory time limit on the taxpayer for the production of the information requested in the initial letter. If for any reason it is not going to be possible to provide this within the time frame specified, it is advisable to make contact with HMRC when this is known and agree an extended deadline. This can be useful in both getting some sort of relationship started with the officer dealing with the enquiry and also gaining maximum penalty mitigation relating to cooperation if the worst happens and there is culpability. It is, therefore, important to keep communications ongoing with HMRC. It is also important to make sure that any deadline agreed is reasonable and is met.
If you do not comply with the request for information HMRC can make it a statutory obligation. Once this happens HMRC have the ability to impose financial penalties for non-compliance until you do provide the information being requested. Whether the information being requested is reasonable is another matter and care should be taken in providing the right documentation and only that which HMRC are entitled to request and in your power to provide.
Are there particular business or areas that are targeted?
HMRC will often target a particular sector because it has become aware of consistent malpractice across the sector. Over the last few years we have seen plumbers, taxi drivers, dentists, and consultants operating under umbrella companies all being looked at. We have also seen from the national press HMRC showing a lot of interest in the tax treatment of ‘image rights’ of footballers. This has culminated in HMRC very recently issuing guidance on the tax treatment of such payments.
HMRC also look at whether or not an individual has the means to finance his or her standard of living. From the ever increasing amount of information that HMRC can obtain from financial institutions, websites and social media they potentially have a very good idea of an individual’s financial activities, assets and other financial interests. There can be perfectly sound explanations as to how assets may have been acquired and how a life style is funded.
With the new agreements that the UK Government has recently signed up to with other countries HMRC will be receiving a lot of information relating to offshore interests. It is very likely that HMRC will be making use of this information and we can expect to see more enquiries because of this.
To deal with some enquiries then professional help and advice will be required. The sooner that contact is made then the better placed you will be to deal with any enquiry and pay the right amount of tax, penalties and interest.
How We Can Help
We have experience in dealing with HMRC tax investigations and will be happy to help. As always you can contact us to discuss any issues raised above or any other Tax queries you have.