If the tax investigation is not handled properly HMRC can demand extra tax or may charge a penalty relating to some foregone event. Therefore, it is always a good move to seek professional advice from the earliest spot.

HMRC has the right to check the business affairs at any point to make sure the business is paying the right amount of tax. An inquiry may be a full inquiry, in which HMRC will review the entirety of your business records because they believe that there is a significant risk of an error in your tax. When investigating limited companies, they might look closely into the tax affairs of company directors and the affairs of the business itself.

They may also look at a particular aspect of your accounts, called an aspect inquiry, such as inconsistencies in a section of a recent tax return. At the same time, a random check can happen at any time regardless of the state of your accounts or whether an alert has been triggered or not.

If your business is selected for an inquiry, you will receive an official HMRC tax investigation letter or phone call in which they’ll tell you what they want to look. This inquiry might include things like:

• Your self-assessment tax return
• Your accounts, tax calculations and amount of tax that you pay
• Your Company tax return
• Your PAYE records and returns if you are an employer
• Your VAT returns and records if you’re VAT-registered

We can help our clients avoid the unnecessary time and effort it takes to tackle the tax inquiries and not try to make tax investigations at the cost of the client’s earnings. For this reason, we do not encourage tax investigation insurance. If an inquiry is the matter of focus, we probe into the following essential areas explained below further.

• Reasons why HMRC may raise a tax inquiry
• Inquiry window of HMRC
• Fake HMRC emails, letters and text messages
• Tax evasion and its examples
• Penalties for tax evasion
• Ways to reduce tax
• Insurance for tax investigation
• Services related to the tax investigation

Reasons Why HMRC May Raise A Tax Inquiry 

HMRC can start a tax investigation for an organization for several reasons. Some of the general reasons are:

• HMRC may make a random businesses selection or taxpayers for investigation.
• An offended customer, former partner, unhappy employee, or competitor may report to HMRC, instigating a tax investigation.
• HMRC may believe you owe more tax to them than mentioned on the return
• The information provided on a tax return does not correlate with other data available with them.
• HMRC may initiate a tax inquiry as it often seeks clients, landlords, and members’ data from estate agents and trade organizations.
• Some tax return adjustments may not accurately mention the source of employment, earning, insurance benefits, national insurance number, loan repayment and repayment of the child benefit scheme.

There is nothing anybody can do to avoid an HMRC tax investigation. Still, if you fall into the tax investigations, we can help you deal with the HMRC inquiries professionally. If HMRC opens an investigation against you, we will deal with them to close the investigation. In some cases, HMRC will levy a penalty on your business, but we will ensure that its incidence, if any, is as minimum as possible.

Disclaimer

Enquiry Window Of HMRC 

HMRC enquiry window runs for the next 12 months from the date the tax return is submitted. Similar is the case with a voluntary return. In case of late returns, the inquiry window is extended by another quarter, following the first anniversary of the filing date.

A taxpayer is permitted to make amendments to his/her tax return up to 12 months from the date of submission. Any amendments to the return will not extend the inquiry period any further.

HMRC can however put up a ‘discovery assessment’ to fact-find further information that was not available to them when the original tax return was submitted. The time limit for a discovery assessment is 6 years in the case of carelessness and 20 years in case of a conscious effort to evade tax.

Fake HMRC Emails, Letters, Text Messages 

Beware of the scammers! Sometimes you may receive emails for a tax refund that may be sent by scammers. With the advancement in technology, cyber-crimes have also evolved. If you get into their trap they may steal your confidential information like your contacts, address and your account details, etc.

You can double-check any messages received from the HMRC account and online record to confirm their authenticity. The personal tax account provides the users the aid to view a history of tax filings, payments, and liabilities.

Tax Evasion And Its Examples 

Tax evasion is illegal and another way of avoiding such tax you are rightfully liable to pay. This is a criminal offence and may lead to significant financial penalties if they come to the notice of HMRC. Our recommendation would be to file your financial information and tax returns correctly and accurately. Following are some of the instances of tax evasion:

• Manipulating accounts, statements or deliberately showing a loss, thereby avoiding a considerable amount of tax.
• Failure to fully disclose all of your income, through being a landlord, sole trader, owner of a company, and beneficiary of a trust.
• Fall in income, increase in costs, unusual fluctuations in business assets and transactions.
• Masking the income through various schemes in which employment earnings are routed through an offshore entity, located in a low tax jurisdiction.
• Misrepresenting the remuneration scheme, in which pay is directed through an umbrella company in the form of a loan prevents PAYE tax.

In general, a UK resident is subjected to tax on his worldwide income, for which explicit rules are in place to determine his status for tax. For companies, the corporation tax liability is defined by the central management and the region of ultimate control. For instance, a company owned and managed by a UK tax resident will be liable to the UK tax regime regardless of the place where it is incorporated.

The penalty for tax evasion and errors or omissions in the tax return is calculated as a percentage of the tax lost. The amount of levy of liability depends on several factors, for example, whether the disclosure of incorrect information or inaccurate return is done voluntarily or HMRC discovers the error. Other ways in which the penalty is determined are:

• Whether the disclosure is prompted or unprompted.
• A voluntary disclosure will reduce the chance of a high penalty.
• In case of errors and omissions, HMRC encourages prompt and complete disclosure. HMRC may also reduce the penalty in case of quick and thorough disclosure.
• A misstatement highlighted within 12 months of the filing date may attract a lower penalty. A higher rate may apply where the omission is more than 12 months old.
• Whether the misstatement results from carelessness or a conscious effort to evade the tax.
• A conscious effort to conceal the evasion could result in a more significant penalty.

If the HMRC enquires about the offshore income and assets, any subsequent disclosure will be treated as prompt disclosure. The charges for not revealing your overseas income may be significant.

Ways To Reduce Tax 

You can avoid tax incidence through the legitimate use of tax rules and regulations and can avoid extra taxes to a certain extent by utilizing the available allowances, deductions, exemptions, and tax reliefs. Businesses can also invest in areas that are tax exempt. Reducing the tax liability is investing in an individual savings account, pension schemes, and claiming capital allowances.

Insurance For Tax Investigation 

Tax investigation insurance is a kind of security that the firm will cover the charges in an HMRC tax investigation. In most cases, the cost of an inquiry is lower than investigation insurance in the long run. For this reason, we do not recommend this practice.

We take every possible step to keep your tax affairs transparent and accurate so that the chances of a tax inquiry are relatively low. In case of an investigation, we can review the entire circumstances behind the investigation and its potential tax implications. In certain instances, we may advise our clients that the best way forward would bring the claim to a prompt settlement and prevent any aggressive approach with the HMRC.

Service-Related To Tax Investigation 

We have vast experience in handling tax investigations, and our services include:

• Examining the tax inquiry circumstances to ensure extra tax is not levied
• Negotiations with the tax authorities
• Reviewing internal controls to find out problems that lead to an investigation
• Advising on the tax planning challenges that an organization may face
• Carrying out tax work transparently and accurately to avoid any chances of inquiry.
• After identifying any errors, provide advice to ensure their avoidance in the future
• Dealing efficiently with all HMRC correspondence to resolve the dispute.
• Facing all the inquiries on behalf of our clients and ensuring adequate time to concentrate on more critical aspects of the business.

Care Accountancy aims to provide our customers with the level of service they demand in HMRC-related investigations. We act as our client’s agents at HMRC and satisfactorily tackle their inquiries on various occasions. We are ensuring adequate time for them to concentrate on more critical aspects of the business.

In every case, satisfying our client is our ultimate priority. We provide the most accurate and efficient taxation service to ensure that the tax liability of our customers is minimized, if not eliminated. In the light of our vast practical experience, we provide credible advice about any aspect of the business. All this can become quite complex when the client seeks to minimize the tax liability legally while ensuring compliance with the tax rules and regulations.

Care Accountancy can advise choosing the practical grounds of making appeals and the best path to take when dealing with the HMRC to create an efficient resolution.