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Who Gets Investigated By HMRC

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  • 07-04-2022
Who Gets Investigated By HMRC

Have you considered: Who gets investigated by HMRC? Find out more about the HMRC tax investigation procedure and how to find out if HMRC is investigating you.

How Do I Know If HMRC Is Investigating Me?

You will not immediately be notified if HMRC begins looking into your tax affairs. Once this part of the process is over, if HMRC decides to investigate you formally, you will receive either a letter or phone call from a specialist HMRC team. They will need information, asking you for more information than they already have or simply letting you know that the investigation has begun.

Sometimes a full HMRC tax investigation will begin much slower and much more organically. For example, a general office compliance audit may be requesting more information about the latest tax returns or perhaps information that regards a property transaction. At this point, it is not uncommon for the proceedings to expand into a full investigation.

HMRC Tax Investigation Procedure

When HMRC believes that criminal activity has occurred, this can include extensive tax evasion or VAT fraud, then they may open a full criminal tax investigation. This will not be known to you until you receive an official HMRC investigation letter asking for you to attend a voluntary interview under caution or you are arrested.

Sometimes even when the most extensive and deliberate tax evasion is identified, HMRC will choose to either offer or accept to deal with the situation on a civil basis by entering into a CDF, Contractual Disclosure Facility, under Code of Practise 9. This is also known as a COP9 investigation. 

This process is structured and done by specialised investigators. It allows HMRC to recover all the necessary outstanding tax, along with the interest and any penalties, from a person. This can be done as long as full disclosure is made. If all of this can be achieved, then HMRC can guarantee that the person will not be prosecuted for the issues disclosed.

If you are currently aware of any irregularities in your tax affairs and you have no way of solving the issue, or if you are worried that you may be investigated or will be the subject of a tax investigation or prosecution, then we would highly recommend that you receive expert advice on how you can find your way out of the issue. We would recommend contacting a specialist tax lawyer as soon as you can.

What triggers an investigation?

HMRC claim that compliance checks are most commonly triggered when the figures found on a submitted return appear to be, in some way, wrong. If a small company all of a sudden attempts to make a large claim for VAT, or a business with a large turnover declares only a small amount of tax, then it is highly likely that the HMRC will be alerted of their tax issues.

However, through speaking with HMRC workers, there are some other triggers that can make a business become the target of an investigation. Whilst everything below is true, it is important to remember that tax investigations can also just be completely private. Here are the few examples HMRC workers have advised us of:

01.

HMRC can receive a tip-off about inconsistencies or issues with a person's tax

02.

If you work in a high-risk industry, one that, for example, may routinely take cash payments.

03.

If you consistently file your tax returns late

04.

If your costs are way above the average for your industry

05.

If your tax returns are completely inconsistent with your regular standard of living

06.

If you are in a sector that HMRC has decided to target

07.

If you suddenly have a large fall in your income, a large increase in your costs, or there are major inconsistencies between different returns and their figures.

What business taxes does HMRC investigate?

There are many different types of business taxes that HRMC can investigate. Many people believe their investigations are limited to income tax; this is not at all true. Other areas of taxation, such as the following, can be investigated:

 VAT

 Corporation Tax

 Climate Change Levy

 Landfill Tax

 Capital Gains Tax

 Insurance Premium Tax

 Construction Industry Scheme

What types of investigation are there?

There are three different levels to an HMRC tax enquiry. These are a full enquiry, aspect enquiry, or random enquiry.

During a full enquiry HMRC deals with the cases where there is a likelihood that there has been a significant error made in a tax return.

In this form of inquiry, HMRC will undertake a review of all records. This can include personal financial records of the Directors/Business owners and the business records.

If a business is put through an aspect enquiry then HMRC will be concerned with a specific or particular part, or parts, of your accounts and want more detail to solve the issue.

Generally, the outcome will point to a genuine mistake or misunderstanding rather than a serious and purposeful attempt to evade tax and the law.

Though, just because this type of enquiry is regularly due to competence rather than maliciousness doesn't mean that this enquiry is to be taken lightly. It should be treated just as seriously as a full investigation.

Finally, a random enquiry is just that, completely random. Regularly HMRC will just pick a varied selection of businesses at random in order to investigate.

What happens once HMRC has decided to investigate?

Once HMRC has decided that they will conduct a tax investigation, you will be obligated by the law to provide all the information that they require from you. If you strongly believe that HMRC's reasons for investigating are completely wrong, then you can argue against the decision. Though in many situations, this will not be a useful tactic. The rest of the process is in the hand of HMRC; they will look into what has caused the anomaly in your taxes. In the majority of cases, the issue is due to a minor variance or inconsistency, and then the case is quickly closed.

Of course, there are some situations where cases will require a more detailed investigation. In these cases, HMRC will request further information.

What are the possible outcomes of an investigation?

What happens next during an investigation will depend on what HMRC fins during their searching and examining. Below are some of the most common outcomes and solutions include:

In this situation, the taxpayer will later receive a tax rebate, including interest .

The outcome in this situation will result in the taxpayer being legally required to pay any tax owed within a 30 day period. In some scenarios, interest is added to the tax owed.

When HMRC are conducting a tax investigation, and they then conclude that there was a level of deliberate wrongdoing on the head of the taxpayer, then commonly HMRC will heighten the case to criminal status. When this happens, the taxpayer is commonly obliged to pay a penalty. The specific amount of the fine will depend on factors such as why the taxpayer underpaid or over-claimed on their tax. If the taxpayer told HMRC that a mistake had been made as soon as possible, or they were completely cooperative through the enquiry, the penalty is likely to be lower.

When does an investigation end?

The end of a tax investigation will be officially marked through a decision notice or agreeing on a contract settlement:

Decision notices are often received in the form of a letter. They will detail in specific terms what the final position of the case is, and they can also include an assessment or a penalty notice.

A contract settlement is a legally binding agreement between HMRC and the taxpayer. In this agreement, the taxpayer will agree to pay the required money, and HMRC will agree not to use its legal powers to acquire the money.

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