How to deal with an HMRC Investigation

When the HMRC launches an enquiry into a taxpayer's returns, there may or may not be a suspicion that there is anything wrong it could even be a random check.

The bottom line is that even if there has been an omission or error which has triggered the enquiry, there is a basic assumption on the part of the HMRC that the taxpayer has not deliberately or constructively tried to pay less tax than he owes.

However, if in the course of the enquiry the Taxman discovers possible evidence to suggest that the taxpayer has either not complied with tax law in a positive effort to pay less tax or not reported revenue or costs honestly, then the enquiry can become an investigation. This then becomes a completely different ball-game, with the ultimate objective being not just the recovery of the unpaid tax, interest and penalties, but also the possibility of criminal charges.

I think the most helpful and positive advice I can give to any taxpayer in this position is to understand the HMRC 's position. You yourself may know that you are honest, honourable, law-abiding and genuine. However, the Taxman doesn't. The HMRC have no idea who are the bad guys and who are the good guys, and the only way to find out is to investigate. The law states that if the Revenue has any reason to suspect there might be possible tax fraud, then the procedures for criminal justice have to be followed.

If you find yourself on the sharp end of an HMRC Investigation, then there is one and only thing to remember. And that is, the sooner you can show the HMRC that you have nothing to hide. You need to give simple and innocent explanations to all and any of their suspicions. This is because the sooner the Revenue decides not to invest in a detailed and lengthy investigation, the better. As a long investigation will cost them and you a great deal of time, effort and money. The problem with most tax inspectors is that they have never been contractors or self-employed professionals, and therefore, they can only think and reason in terms of tax law without necessarily understanding the circumstances relating to a particular discipline or professional specialisation. Once an investigation becomes a potential criminal prosecution by the Special Compliance Office of the HMRC, it is essential that you do two things:

  • Ask yourself if you are entirely and genuinely innocent of doing anything to deliberately and constructively pay less tax than you owe.
  • Ask yourself how much you can afford to pay in accountancy and legal fees to defend yourself against criminal proceedings by the HMRC.

Depending on the answers you give yourself, you may decide to sit down with the HMRC and/or the Special Compliance Office at the earliest opportunity. This is to talk through their concerns and assuage their fears about tax which may or may not have been 'at risk' (the HMRC's own term for avoided and/or evaded).

Alternatively, you might decide to put yourself in the hands of a tax accountant or solicitor who can handle your case for you and represent your interests. Whatever you decide, you must remember that such proceedings can be lengthy, stressful and expensive, and at all costs - if there is an opportunity to satisfy the concerns or suspicions of the HMRC at the earliest opportunity - you must try to prevent the proceedings from proceeding in the first place.

Article by Angela Brooks Wong, Tax Relief.

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