HMRC investigation? Let us help protect your interests
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.
People often think they can outwit HMRC and stay one step 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 they underestimate HMRC at their peril.
If you require help with tax or VAT investigations then speak to our experts on 0114 272 4984 or email firstname.lastname@example.org.
Latest news & blogs…
THE GOVERNMENT has confirmed that the upcoming Finance Bill will include changes to discovery assessments, allowing HMRC to recoup unpaid high income child benefit charges going back almost ten years.
In todays Shipleys Tax brief we look at this concerning development.
What’s the High-Income Child Benefit charge (HICBC)?
The unpopular High-Income Child Benefit Charge (“HICBC”) was introduced in 2013 and is a tax charge paid by so called “higher earners” which claws back up to 100% of any child benefit received by the earner or their partner. A high earner for this purpose is when the income of the child benefit claimant or their partner exceeds £50,000 p.a. The charge is collected via the annual self-assessment tax system and taxpayers affected by these rules are required to register for self-assessment and pay their HICBC by 31 January following the end of the tax year.
What is happening now?
Despite HMRC administering the collection of child benefit payments from high earners, it is still finding taxpayers that have not declared the benefit in previous years. In a recent case, it was found that HMRC did not have the specific legal powers to recover the HICBC even where the charge remained unpaid for a few years. The decision in Wilkes v HMRC found that HMRC did not have the power to impose the HICBC by means of “discovery assessment” (a form of enquiry into a tax return) as there was no income which ought to have been assessed. As a result, the child benefit claimant Mr Wilkes did not have to pay the tax charges.
If you can’t beat it – change the law…
As a consequence of losing the case, the government has confirmed that the upcoming Finance Bill will include changes to tax investigation powers, allowing HMRC to recoup unpaid high income child benefit charges going back almost ten years.
Once the Finance Bill is enacted, HMRC will be able to open tax investigations (“discovery assessments”) to collect any unpaid child benefit tax charges from as far back as 2013. However, the rule change will not apply to those that have already appealed against such assessments.
What does this mean?
Individuals with income over £50,000, where either they or their partner receives child benefit, could soon receive a large unexpected tax bill from several years ago.
This could have drastic consequences on unsuspecting child benefit claimants. For example, complications around relationships where parents are separated or where a relationship ends, or those who are not married are not properly accounted for. At Shipleys Tax we advocate paying the correct amount of tax, however where the collection system is flawed there are many instances where injustices will occur and individuals will be faced with large tax bills that they were genuinely unaware of, or don’t have the finances to meet the liability due to the pandemic, or the amount has been incorrectly assessed due to inherent flaws in the system.
If you are affected by any of the issues above and would like more information, or need help with tax investigations please call 0114 272 4984 or email email@example.com.
Please note that Shipleys Tax do not give free advice by email or telephone.
AS PART OF the UK Government’s climate change initiative to encourage drivers to ‘go electric’, the Transport Secretary, Grant Shapps, announced an extension to a £50 million Government fund to install electric charge points. The fund aims to help small business to gain access to the workplace charging scheme and provide grants to meet up to 75% of the cost of installing electric charging points at domestic premises.
Whilst we know tax advantages are available where employees opt for an electric company car (see LINK), is there a tax charge if an employer provides a charging point to enable employees to charge their own cars at work?
In today’s Shipleys Tax brief we take a summary look at whether a tax charge arises in these circumstances if you’re planning to help your employees go electric.
Workplace electric vehicle charging
A tax exemption applies to remove the charge that might potentially arise where an individual charges the battery of a vehicle that is used by the employee.
The exemption means that an employee is able to charge their own car, or one that they are driving or a passenger in, using a workplace charging free of any associated benefit in kind tax charge. There is no requirement that the electricity provided is used for business journeys; the exemption applies regardless of whether the charge powers business or private journeys.
The exemption covers:
- the cost of the electricity;
- the cost to the employer of providing the charging facilities; and
- any connected services.
However, the exemption only applies if the following conditions are met:
- the charging facility is provided at or near the employee’s place of work;
- charging must be available to all the employees generally or those at the particular workplace should they wish to use the facilities; and
- the vehicle which is charged is one in which the employee is the driver or a passenger.
Likewise, no tax charge arises if an employee uses a workplace charger to charge an electric company car. There would, in any event, be no tax charge in respect of electricity provided for business journeys. However, as electricity is not treated as a ‘fuel’ for company car purposes, the use of a workplace charging facility does not trigger the fuel benefit charge if the charge provided powers private journeys.
The tax exemption does not apply to the reimbursement or payment of an employee’s personal expenditure in respect of charging a battery in a private vehicle away from the employer’s premises, for example, at a motorway service station. Where the vehicle is used for business journeys, mileage allowances may be paid tax-free up to the approved amount.
However, no tax charge arises in respect of the provision of electricity for a company car for private mileage as electricity is not treated as a fuel for the purposes of the fuel benefit charge.
A first-year capital allowance of 100% of the expenditure is available for expenditure on electric charge-point equipment. The allowance is available for expenditure incurred before 1 April 2023 for corporation tax purposes and before 6 April 2023 for income tax purposes.
If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email firstname.lastname@example.org.
Please note that Shipleys Tax do not give free advice by email or telephone.
Received an automated message from HMRC saying you are under investigation? Why you should NOT reply
ITS APPROACHING that time of year when taxpayers start thinking about their self assessment returns and tax refunds. This is also the perfect time for fraudsters to target unsuspecting taxpayers and try to con them out of their hard earned money.
In today’s Shipleys Tax brief we look at the most common tactic which you should be aware of and will hopefully protect you from fraudsters.
This involves receiving an automated text or voice message or call purporting to be from HMRC saying you are under a criminal investigation. We recommend you do NOT reply – this is most likely to be a scam. HMRC will never contact you by phone without giving you an official notice in writing.
This is not a new scam but rears its ugly head every year. Often a recorded message is left, allegedly from HMRC, that starts: “This is Her Majesty’s Revenue & Customs. We have been trying to reach you to let you know that we are filing a law suit against you/you have a tax refund due.”
The recipient is then asked to phone 0XXXX XXXXXXX and press “1” to speak to the officer dealing with the case. Do not to reply to this message as they will then try to extract money from you or more likely the call will be an extortionate rate number.
Some basic things you can do to protect yourself.
Tip 1 – If the caller can’t verify their identity, you should never disclose any personal details.
Tip 2 – If they have given you “contact” details (and they should have no hesitation in doing so), call HMRC on their contact number to check if it is a genuine officer or a scam. You should never proceed without verifying this.
Tip 3 – If you receive either of these scam calls, report it on the Action Fraud website or you can call 0300 123 2040. You can forward suspicious emails claiming to be from HMRC to email@example.com and texts to 60599.
For more on this visit: Link
If you are under a Tax or VAT Investigation and would like a specialist to review your case for free, please call 0114 275 6292 and book an appointment with our Tax Investigations Team or email firstname.lastname@example.org.
Please note that Shipleys Tax do not give free advice by email or telephone.