What happens if I have been selected for a tax investigation?

Being subjected to a tax investigation can be a very stressful experience. It is important to tread carefully and follow the correct steps.

Any person or business can be selected by HM Revenue & Customs (HMRC) at potentially any time – meaning you never know when an enquiry might be just around the corner.

It therefore makes sound sense to take out Fee Protection insurance to cover the cost of professional fees should an investigation arise.

HMRC is not under any obligation to provide a reason for the investigation but, if you have been selected, you will receive a letter requesting a response within a tight timeframe – usually between 30 and 35 days.

The first step to take is to seek specialist advice and ensure that you respond to this letter within the set timeframe. This applies to any written requests received by HMRC throughout the investigation process. The level of enquiry HMRC chooses to pursue will be described in the letter as either an ‘aspect enquiry’ or a ‘full enquiry’.

A full enquiry will delve into much greater detail and will usually require the recipient to provide HMRC with business records for the entire year of enquiry and quite possibly other years too, while an aspect enquiry may only focus on an individual aspect of a tax return and is likely to be resolved much more quickly. Regardless of the circumstances, specialist advice is crucial.

What the investigation involves will depend largely on the level of enquiry, but in most instances HMRC will request some or all of the following: bank statements, paying-in slips, VAT records, payroll records and possibly much more.

If the business records are kept electronically, HMRC will request details of the accounting software package as well as access to, or a backup of, the accounting records. HMRC may also require a meeting at this early stage.

Once the investigation has concluded, the inspector will advise of any adjustments required to correct any previous errors or misstatements in respective tax returns.

If errors have been found, then it is likely that HMRC will press for penalties to be levied.  These can range from 30% to 100% of the tax lost, dependent on a number of factors.  At this stage, professional assistance can help to minimise the extent of penalties payable. In very serious cases, HMRC can opt for a criminal prosecution.

Regardless of the circumstances, resolving a dispute with HMRC can be time-consuming, costly and disruptive to your businesses.

At Richard Anthony, we encourage our clients to consider our Fee Protection Service – which covers fees payable in the event of certain enquiries raised by HMRC, as well as access to specialist advice from Insurers.

To find out how the expert team at Richard Anthony can help, contact us today.  

At Richard Anthony we solve problems.