Over the recent years and following pressure from the government, HMRC have substantially increased their tax investigations and enquiries. At Churchill Tax Investigation, we have been advising a number of businesses, accountants and solicitors from across the UK on the increasing number of tax investigations and how to ensure that your business is safe from adverse tax enquiries.
Any business can be subject to a tax investigation. Whether you are a large, established business or you are a sole trader, a HMRC tax enquiry can be raised. Every tax investigation whether it relates to Income Tax, Self Assessments, PAYE or Corporation Tax will be conducted by HMRC. The majority of companies will be notified that they are under tax investigation through an official HMRC letter. In some instances, HMRC will call a business to notify them of a tax investigation but this usually relates to investigations into VAT affairs. For income and corporation tax investigations, HMRC will write to the registered address notifying them of the investigation.
When being investigated, there are two types of notice: A formal notice and an informal information request. Once received, a business or individual will have a period of 30 days in which to provide the required information to the HMRC. If a telephone call was received, the timeframe to respond will be much shorter. In the majority of HMRC investigations or tax enquiries, the business being investigated will need to assess whether the information request is reasonable within the timeframe given. If you believe that the timescale is not long enough to prepare and provide the information requested, it is strongly recommended that you contact the HMRC and negotiate an extended timescale. More importantly, you should contact a tax investigation specialist firm to deal with your tax enquiry. This will save you time and money in the long run.
An HMRC investigation can take one of two routes. The first is where they explore a full return which is referred to as a Full Enquiry. Alternatively they may decide to investigate a single element of a return, known as an Aspect Enquiry.
The tax investigation procedure will be relatively similar for both Full and Aspect Enquiries and will usually involve the following steps:
1. Inform your accountant
Although this may seem obvious, it is surprising how many people don't notify their accountants. This is the first thing that you should do if you are under a tax investigation. HMRC may notify you that you are being investigated about three issues but only notify your accountant about two of these. This often happens where the HMRC don't have authority to contact your accountant to discuss certain issues. It would be unwise to make the assumption that your accountant knows everything about the tax enquiry.
2. Appoint a Tax Investigation Specialist
Handling a tax investigation requires years of knowledge and experience and is usually outside the remit of an ordinary accountant. Appointing an experienced and well know tax investigation specialist to deal with a tax investigation can be much cheaper as the specialist will ensure that they negotiate the lowest possible tax liabilities for you. Using an inexperienced accountant might seem cheaper due to the lower fees but you are likely to end up paying significantly higher taxes and penalties to HMRC. Furthermore the tax investigation expert will provide you will expert advice on how to manage your affairs and to stay out of trouble going forward.
3. Understand the Requirements
Now you know that the HMRC want to investigate your taxes, the next stage is to determine exactly what they require. In their letter they should provide information about what they wish to assess. Find out what they are requesting, how you can answer their questions and if the information they are asking for is accurate.
4. Information Sharing
Once you have determined what is required, you must address all aspects of the information request from the HMRC. Ideally this information should be sent through your accountant or tax adviser.
5. The Investigation
After the information has been submitted, the HMRC will analyse the details that you have provided. If they require any further information they will be in contact. It is impossible to say how long this stage will take because each business and each tax enquiry is different.
6. Review the closure notice
Provided that the tax investigation has not found anything of concern in your tax affairs, the HMRC will issue a Closure notice. This will notify the business or individual that the tax investigation is complete and no additional tax needs to be paid.
Tax enquiries aren't always straightforward and they don't all end in a Closure Notice. If the investigation does find something for concern, you may face further investigations and in the worst cases be prosecuted.
When issued with any tax enquiry notice it is important that you cooperate, respond in a timely manner to the HMRC tax investigation enquiries and provide the information that they require. It is also recommended that you work closely with your accountant (if you have one) and a tax investigation specialist.
Churchill Tax Investigation are the UK's leading tax investigation specialists with one of the highest success records. We provide tax investigation advice to direct clients, accountants and solicitors from across the country.
If you are undergoing a tax enquiry, you can contact our team of tax investigation specialists for a free and confidential consultation. We will be able to advise you on the strengths and weaknesses of your case and identify an appropriate strategy in dealing with your tax investigation.