HMRC Investigations - Are you under suspicion

20 March 2011

“The government has provided HMRC with a further £900m to fund more interventions, enquiries and investigations. This aims to raise an additional £7bn in tax each year by 2014/15 to help address the budget deficit and tackle tax evasion and avoidance.

This investment is underpinned by a raft of new and powerful legislation across all taxes and initiatives from a new penalty regime to “naming and shaming” as well as wider ranging powers to inspect taxpayers records and documents. Undeclared offshore accounts will continue to be rigorously pursued.”

Source: Grant Thornton LLP Tax Investigations Update March 2011  

Tax investigations must come top of the list of anxieties for business owners due to their lengthy, uncertain and open ended nature. Here we look at how HMRC select businesses for investigation and what steps you can take to reduce the chances of one happening to you.

The Selection Process      HMRC will launch an investigation if they think there is a high risk of tax being understated. Experienced resources are scarce at HMRC and so will be matched to the highest risk area. An investigation may be launched where HMRC think there has been an understatement or failure to notify HMRC of income or gains. In addition, the risk and intelligence service at HMRC will look for other areas of non compliance such as non payment, late returns or returns that do not match industry trends/previous year’s trading.

What Can You Do             Let’s start with the obvious – make sure you are making full and accurate disclosure of your affairs to your accountant. You are responsible for your own tax affairs and will be signing your tax returns to state that they are complete and accurate.

                                             Keep accurate and complete books and records to prove the numbers declared on the tax return.

                                             Keep cash transactions to a minimum. If you do have to pay in cash, make sure you have a receipt.

                                             Submit returns and pay your taxes on time.

                                             Explain significant differences in results/turnover to your accountant and make sure it is recorded in the “white space” box on your tax return

Remember that HMRC has access to significant amounts of information including property transactions and bank accounts. If you have a second property which generates income and think you will be able to sell it without HMRC becoming aware, our advice is to think again and consider a full disclosure as soon as possible. We can assist in this so please do contact us.