HMRC have been cracking down on unpaid taxes over the last 4-5 years, and these crack downs are gaining momentum. Before HMRC investigators targeted those individuals in high income, cash and business who are more likely to use tax avoidance schemes. Now the climate has changed no one is immune, tax officials are targeting everyone from landlords, professionals, individuals who sell on eBay, to those who work from home like sale representatives.
HMRC have set up teams to investigate areas they believe to be high risk tax fraud, these could be geographical or specific sectors. In recent years it has been property income.
HMRC investigators will not explain what triggered the tax investigation. It could be just a random enquiry or some obvious error or omission HMRC have detected. Sometimes it could be something simple as your tax returns being constantly late or your expense claim was high against your income. Whatever the case is, if you receive a letter of investigation from the HMRC don’t panic. Some investigations can simply finish with one letter others can go on if HMRC request more information.
If you are under a Tax investigation HMRC can go back 20 years but it is usually 4-6 years. When you receive an HMRC Investigation letter it will detail what information is required depending on what they are investigating. Normally they will require information based on the tax return you have submitted.
HMRC determines what years they can assess and the level of penalties. There are 3 main categories they use, based upon the behaviour of the taxpayer:
1 Innocent Omission : If HMRC discover there was tax to be assessed, and the taxpayer was wrong without being carless the normal time limit is 4 years from end of year, i.e. they will open up 4 tax years.
2 Careless or Negligent : If HMRC find the taxpayer to be Carless/ Negligent by failing to do what a reasonable prudent man would do. HMRC will look into 6 tax years from end of year.
3 Deliberate : If HMRC establish that the omission was deliberate i.e they had the knowledge and had intend to conceal HMRC will investigate 20 tax years.
The calculation of the penalties and Interest depends on whether failure to disclosure was innocent, carless or deliberate, the penalty can be even higher if there was evidence of an attempt to conceal. The penalties can be anything from 0% - 100%. In certain cases the penalty can be as much as 200%, i.e. where there is foreign income involved.
When HMRC makes an assessment the onus is on the taxpayer to displace the assessment. If the assessment is based on the taxpayer behaviour being carless or deliberate the onus is on HMRC to prove this was the case.
Taking into consideration the above a tax investigation can turn into a lengthy and costly exercise, a pain well worth avoiding. Therefore is it imperative to consult with an accountant or a tax specialist who has experience of these cases. Appeals can be made against: An assessment, A penalty notice, A decision or A notice under Section 36 FA 2008. This can be a long and complicated process, and if the appeal goes against you the HMRC investigation or penalties remains to be addressed.
An accountant or tax specialist with the correct experience will
- Collect and ensure the correct and precise information is sent to HMRC Investigators.
- Attend to additional information requests.
- Ensure the enquiry is not extended unnecessarily by HMRC.
- Negotiate a final settlement of interest and penalties.
- Negotiate the time period of payment as it is due immediately.