Being subjected to a tax investigation can be a stressful experience and, unfortunately, one that no person or business is immune from.
From landlords and overseas investors, to the gig economy and SME’s and from trusts to online retailers; the truth is, irrespective of how big your business, how long you’ve been in business or what sector you operate in, you never know when an enquiry could be just around the corner.
Anyone who submits a tax return is at risk of being investigated by HMRC; there doesn’t have to be a specific reason and it can happen at any time.
The selection process
Typically, you will receive a letter from HM Revenue & Customs (HMRC) that outlines its intent to undertake an investigation.
As aforementioned, it is unlikely that HMRC will give a reason for the enquiry and they are under no obligation to do so. The letter will request a response from the subject within a specified time-frame – usually between 30-35 days.
Before responding to HMRC’s written request, we would urge you to seek professional advice. Bear in mind though that you may incur penalties if you do not respond within the allotted time, so it is important that you speak to your adviser as soon as you receive notification.
Aspect enquiry vs. Full enquiry
Investigations range from straightforward enquiries relating to a single entry on a tax return, for example, to a full-scale enquiry into the accuracy of the return or company accounts.
Generally speaking, we refer to these as ‘aspect’ enquiries and ‘full’ enquiries respectively.
When undertaking a full enquiry, HMRC will likely delve into much greater detail and, in many cases, will expect you to provide business records for the entire year relating to the investigation. A full enquiry may also dictate an examination of the director’s personal tax affairs. At this level, an investigation could easily run on for more than 12 months.
An aspect enquiry, on the other hand, will typically focus on a single aspect of the subject’s tax return. We would expect this type of investigation to be resolved within three to six months.
Access to the right information is imperative
Once HMRC have decided to conduct a tax investigation, you will be obligated to provide the information that they require.
Exactly what evidence the investigation necessitates will depend largely on the level of enquiry. However, in most instances, HMRC will typically request the likes of:
- bank statements
- paying-in slips
- VAT records
- payroll records
- credit card statements
- sales invoices
- job quotes
- expense receipts
If records are kept electronically, a business will be asked to provide details of the cloud accounting software package they use as well as a copy of their records on a disk.
Those under investigation should respond to any requests for information, from an HMRC investigator, within the time given and should expect to receive replies within 28 days.
You may also be asked to attend a meeting with an inspector, which will usually take place at the inspector’s office, but can be held at your premises or your accountant’s office by request. You don’t have to attend the meeting and the inspector can’t force you to do so, but a meeting is often the quickest and simplest way to progress an enquiry.
It is worth bearing in mind that HMRC have the power to…
- inspect documents and assets at your premises;
- ask for other information and documents to be presented;
- make unannounced inspections;
- and they can even go back up to 6 years when investigating.
Tax investigations can be…
Disruptive – there is rarely a ‘convenient’ time to be investigated by HMRC. Should you find yourself subject to one, you will undoubtedly be concerned about how this will impact upon your day-to-day operations, particularly as an investigation can continue for weeks, months or years.
Intrusive – HMRC does not take any prisoners when it comes to securing the information they need during an investigation. Compiling this information, submitting it to HMRC, answering any questions that arise as a result and attending any potential meetings can be a significant burden for many businesses and individuals to bear.
Expensive – as an investigation goes on, costs will begin to mount. This can have devastating consequences for businesses and individuals at a time when many are already feeling the pinch.
How can an accountant help?
It is imperative to take expert advice and guidance when dealing with HMRC and as your accountant, we are your best defence should you find yourself subject to an investigation. We will:
- Translate the complexities of the investigation and relay these to you in terms you can better understand;
- manage any dialogue with the tax man, acting as a barrier between you and HMRC;
- assist you with the submission of any documentation or information required by HMRC;
- minimise the impact of the investigation upon your personal and business life;
- and aim to secure an outcome that satisfies both parties.
As our fees for supporting you during an investigation are not covered in our usual accountancy fees, we also offer a Tax Investigation Fee Protection Service. You can find out more about the service and the protection it provides here.
All this combined means that not only can you be safe in the knowledge that a familiar face is handling your affairs, but also that our fees will be covered should HMRC investigate you. As your advisers we believe that we are best placed to be there for you and your business when you need it most.
We have years of experience when it comes to dealing with both personal and business tax enquiries and investigations, helping our clients to reach a satisfactory conclusion and leaving them with peace of mind when it comes to their tax affairs. To discuss your circumstances in more detail, contact us today.