We protect your interests from intrusive HMRC enquiries
Tax Investigation Management
Tax investigations by HMRC often come as an unpleasant shock for many and can be very stressful.
From the outset communication from HMRC can be quite intimidating as they tend to take an aggressive position and “throw the book”. The enquiry will often embrace many aspects of the business and will typically take the form of a standard template letter padded out in parts by reference to the particular client.
In other cases HMRC will issue a letter which on the face of it looks benign but has far reaching implications if not handled correctly.
At Shipleys we are non-judgmental, vigorous in defending our clients and aim to resolve the investigation in the most efficient manner possible without compromising the quality of our work.
We have the experience and know-how to handle local district cases to large tax fraud cases both in direct and indirect tax (VAT).
And with Shipleys Tax Fee Protection Partner our clients have peace of mind that in the event of an enquiry all professional fees up to the First Tier Tribunal are covered.
- First steps
- How we can help
- How do HMRC investigate a business?
- What are the trigger points to look out for?
Some of the areas in which we regularly assist clients are:
- Code of Practice 9
- Code of Practice 8
- Voluntary Disclosures to HMRC (Onshore)
- Compliance Checks
- Negotiated Settlements with HMRC
- You need to know what your rights are under enquiry
- Identify and prioritise of areas of primary concern
- Assemble and analyse relevant information and evidence in order to quantify the correct tax liability
- You need advice on what HMRC can ask you to produce – whether you have to provide copies of documents and soft copies of electronic files for example
- You need an assessment of your accounting systems to know if it is robust enough to withstand scrutiny
- You want to reduce the risk of an investigation going forward and improve compliance procedures.
How we can help
- Our team consists of highly experienced ex-HMRC Inspectors
- We can influence and control the pace of investigation
- Our specialist knowledge will be utilised to challenge any incorrect assumptions made by HMRC
- Comprehensive Fee Protection insurance for clients
Remember early intervention by a tax investigation specialist could resolve the dispute relatively quickly; what not do to is to attempt to correspond with the tax man yourself as you could unknowingly put the proverbial “foot in it”.
Are under enquiry? Do you think you are at risk of an investigation? Contact us now for independent advice on your options.
HOW DO HMRC INVESTIGATE A BUSINESS?
Some tax investigations are random but increasingly the majority are as a result of HMRC’s risk analyses/assessments.
This “risk assessment” process typically compares the results of the business to other similar businesses; it statistically analyse areas such as gross profit margin, mark-up rate and comparisons to earlier years. Where a case is “risk assessed” HMRC cannot decline the invitation to investigate.
Even where HMRC know that there was “nothing in it for them”, officers have openly admitted that they have no choice but to open an enquiry because the risk assessment process had identified the case as warranting an enquiry.
What are the trigger points to look out for?
The short answer is patterns and, to a certain extent, timing.
Most accountants are unaware that whilst HMRC can launch an investigation into a business at any time within the statutory timeframe, enquiry notices are usually timedto be issued at specific times of the year in order to control work flow. Favoured times for issuing enquiry notice are the end of January (accountants busy with heavy workloads) and Fridays (clients receive a shock when opening post on a weekend!).
Nowadays, HMRC typically impose a non-statutory time limit on the taxpayer for producing information requested in the opening letter. Often it will not be possible to provide this within the time frame specified, and it is advisable to make contact very quickly with HMRC if this is the case. This is important in both establishing a relationship with the officer dealing with the enquiry and also gaining maximum penalty mitigation for cooperation in the event there is culpability.
HMRC expect to see consistency across a business, both within the business itself and also across similar sectors. It will expect turnover to be fairly level whilst accepting modest fluctuations in either direction. If turnover goes down it will expect expenses to decrease. If profit decreases HMRC will query if proprietors’ drawings/directors remuneration increases. This crude analysis tool is often misleading and belies the actual reasons for fluctuations leading to businesses that have nothing to hide being flagged up for enquiry.
For example, if turnover increases substantially HMRC may conclude that maybe not all of the turnover in the previous year was declared. Or if it drops significantly then maybe some has been taken by the owner and not declared? The reality maybe that turnover has increased due to having a exceptionally good year and decreased because of a loss of a large customer or order.
Suspicion is also aroused if the claim in respect of administration expenses increases well beyond what would be expected comparing it with the previous year. HMRC will wonder whether hours have increased (hence the increase in admin expenses) and therefore the officer will wonder why turnover has gone down.
Proprietors’ drawings – a substantial increase could mean that drawings may have been understated in the past, leading HMRC to query whether any cash takings have not been declared. Similarly, if the drawings are less than the salary paid to the highest paid employee HMRC will be very uneasy – business owners are expected to be the highest earners in the business even though the reality is most proprietors in business start ups do not take any drawings in the formative years.
Gross profit margins (GPR) – typically the GPR of the business will be examined over a period of up to 6 years to see whether or not it is consistent. It will also be compared to similar businesses and fluctuations of more than a few percent will arouse suspicion. HMRC has access to a vast database of information indicating what the GPR of a particular type of business should be.
Invoices – An officer will scrutinise invoices carefully to check whether part of the invoices are being paid in cash to disguise the true GPR.
Sectors – HMRC will often target a particular sector because it has become aware of consistent malpractice across the sector. For example, Medical practices, dentists and vets are targeted because they engage locums as self- employed workers whereas in reality it is difficult to show that a locum is self- employed in many typical practices.
Professional footballers and their clubs have been under scrutiny for a few years now mainly because in some cases a player will receive a payment for the exploitation of his “image rights” and HMRC does not approve of this because it reduces or in some cases completely avoids liability to UK tax by devising a structure which holds the image rights offshore.
Umbrella companies and IT agencies using “one-man band” IT companies have been under the microscope for a long time (see IR35), mainly because it is considered that many of them are purportedly engaged as self- employed workers but the reality is that they can be deemed to be employees.
Standard of living – does an individual have the means to finance his/her standard of living? Information will be gained in this regard from a variety of sources, giving HMRC details of property owned, cars, boats, bank accounts, horses etc. Although there will often be perfectly reasonable explanations as to how such assets may have been acquired it may not stop HMRC delving further.
Clients often think they can outwit HMRC and stay one move ahead. However, they should be well aware of that most of the tricks which the unscrupulous businessman may try has been seen and dealt with by HMRC many times over and clients underestimate HMRC at their peril.
Latest news & blogs…
What with cyber-snooping being all the rage these days it seems the taxman is getting in on the act too.
HM Revenue & Customs has now fully unleashed its super-computer, costing over £100m and many years to make, to identify those who may have paid too little tax.
The powerful system, benignly dubbed “Connect”, now automatically gathers information from a myriad of government and corporate sources to create a detailed profile of each taxpayer’s financial position. Where this differs from the information provided by the taxpayer, the account is flagged up and subject to further possible investigation.
Connect now automatically collects information from over 30 databases, covering details of taxpayers’ salaries, bank accounts, loans, property and car ownership..
The system’s data-hoarding does not just stop at the income people have received from work and investment. It also amasses data from the digital footprint left by taxpayers online.
It collates data from diverse sources such as Airbnb and eBay, as well as obtaining anonymised information on all Visa and Mastercard transactions, enabling it to identify areas of likely underpayments which it can then target further.
HMRC also has powers to request one-off bulk data from third parties where there may be particular cause for concern. Insurance companies, hospitals and dentists supplied information to assist with the Tax Health Plan, for instance.
For those with investment properties, it can also access Land Registry records to see houses purchased/sold to check against information on a tax return. In addition, further sources enable it to determine if properties are being rented out and whether that income has been declared. Crucially, it can also determine if someone is likely to be able to afford such properties, or whether they are suspected of having used previously undeclared income or savings.
Particularly striking is the gathering of information from social media. HMRC are now monitoring online posts about holidays, parties and purchases. They may wish to ask questions where they do not feel lifestyle fits with an individual’s reported income.
The tax profession has raised concerns that HMRCs growing reliance on automated systems could mean an increasing number of innocent taxpayers facing investigation. Whilst many of the leads generated by Connect’s data collection maybe worth following up, a proportion will be unfounded causing unnecessary stress and anxiety to those targeted. A surface analysis of data or online information could quite easily lead to misinterpretation. An exaggeration over twitter or Facebook, for example, could paint a highly inaccurate picture resulting in false leads.
Shipleys Tax has many years of protecting taxpayers and succeeding in tax investigations with HMRC, if you need help please contact us 0114 275 6292 or email email@example.com.
What HMRC can find out about you
- UK & overseas bank accounts, pensions: From 2017 HMRC will receive information from banks in more than 60 countries.
- Web browsing and email records: Under the ‘Snoopers Charter’ HMRC will be able to access individual’s digital information
- Property sites -adverts on the internet e.g. Rightmove and Zoopla
- Land Registry records: To determine properties purchased, stamp duty paid and capital gains tax
- Earnings: From any employer, including those you have worked for casually, or on an ad-hoc basis. This includes any company benefits received. It can also access child benefit and maintenance payments through the child support agency
- Internal tax documents: Systems show council tax paid, relevant VAT registration, previous tax investigations, last year’s tax return (or absence of one)
- Visa and Mastercard transactions: Anonymised information on all payments
- DVLA: Details of cars purchased and owned by individuals
- Online marketplaces: Websites such as eBay and Gumtree can be accessed to weed out regular traders
- Social media: The Connect system can also look at public social media account information, including from Twitter, Facebook and Instagram
Connect cross-references information from many other UK government databases, including:
- Council tax
- Companies House
- DWP (former Benefits Agency)
- The electoral roll
- Gas Safe Register
- Insurance companies
HMRC also independently looks at Google Earth.
If your child is under 12 and you’re not working or don’t earn enough to pay National Insurance contributions, Child Benefit can help you qualify for National Insurance credits.These credits count towards your State Pension. They protect it by making sure you don’t have gaps in your National Insurance record.
Retirement may be the last thing on your mind when you’re looking after a new baby, but what you do now could have a big impact on your future finances.
Despite what you might think, no one automatically gets the full amount of State Pension when they retire. You’ll only get the full amount if you’ve paid, or been credited with, National Insurance contributions for 35 years.
The key word here is ‘credited’. Even if you’re not working while looking after your baby, you’ll get National Insurance credits when you claim Child Benefit until your youngest child is 12. The credits are automatically added to your National Insurance account when you claim Child Benefit, so you don’t need to do anything.
For more information please contact us on 0114 275 6292 or firstname.lastname@example.org.
The Finance Bill 2016 finally received Royal Assent on 15 September, enacting proposals announced in the 2016 Budget, Autumn Statement 2015 and Summer Budget 2015. Amongst other things, Finance Act 2016 includes provisions relating to income tax rates and allowances; restrictions on tax reliefs for travel and subsistence expenses (in effect since April 2016), the reduction of the lifetime allowance on pension contributions from £1.25m to £1m (again, effective from 6 April 2016); and the reduction in the main rate of corporation tax to 17% for financial year 2020.
The Act is based on George Osbourne’s final Budget. The annual Finance Bill usually receives Royal Assent in early to mid-July. This year’s extensive delay has been largely blamed on the Brexit referendum followed by the summer parliamentary recess.
The Finance Act 2016 can be found online here or alternatively you contact us for more information.