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.
Sections
- Areas
- First steps
- How we can help
- How do HMRC investigate a business?
- What are the trigger points to look out for?
Areas
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
First steps
- 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.
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.
Patterns
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 info@shipleystax.com.
Latest news & blogs…
The Non-Dom tax break – is the end nigh?
NON-DOM TAX PLANNING has been a hot topic for a long time. Stirring up a whirlwind of controversy and used as a political football in intense debates. This special rule, which helps some UK residents with their permanent homes in another country to pay tax only on their UK earnings, has been under the spotlight many times. Seen as a nifty arrangement for individuals with substantial international income, it’s a hot topic that has both its staunch defenders and determined detractors.
However, all this might soon culminate in a massive change. The Labour Party, who are gearing up for the upcoming general election next year, have plans to do away with this rule entirely. They believe that this would make taxes fairer and could also fill up the government’s coffers a bit more. This looming possibility of change could drastically shift the way people with a lot of income from abroad handle their taxes.
This special rule, which helps some UK residents with their permanent homes in another country to pay tax only on their UK earnings, has been under the spotlight many times.
In this article, we’re going to simplify and demystify the ‘non-dom’ tax issue. We’ll also explore how this potential change is driving a renewed urgency for strategic tax planning, and why engaging with tax professionals is now more crucial than ever.
Non-dom in a nutshell
In the UK, the non-domiciled (non-dom) tax status presents a unique opportunity for certain residents, especially those with foreign income and gains. Second and third-generation immigrants, whose parents were born outside the UK, can generally take advantage of non-dom status where it involves trade income, investment income, and salary.
Understanding Non-Dom Status
A non-dom is a UK resident for tax purposes with a “domicile of origin” outside the UK. Domicile is a complex legal concept that typically refers to an individual’s long-term or permanent home. Generally, an individual acquires their domicile of origin at birth, usually from their father. Non-dom status allows residents to use the remittance basis of taxation, which means they are only taxed on their UK income and any foreign income or gains remitted to the UK. This can result in significant tax savings for those with substantial foreign income or gains.
Second and third-generation immigrants, whose parents were born outside the UK, can generally take advantage of non-dom status where it involves trade income, investment income, and salary.
Taking Advantage of Non-Dom Status
For second and third-generation immigrants, the key to taking advantage of non-dom status lies in their domicile of origin. If their parents were born outside the UK and they can prove their domicile of origin is in another country, they may be eligible for non-dom status. Here are some examples of how they can benefit from this status:
- Trade Income: A second or third-generation immigrant who runs an overseas business can opt for the remittance basis to avoid UK tax on profits earned abroad. By not remitting these profits to the UK, they will only be taxed on their UK-sourced trade income.
- Investment Income: If a second or third-generation immigrant has foreign investments, they can use the remittance basis to avoid UK tax on dividends, interest, and other investment income generated outside the UK. By only remitting a portion of their foreign investment income, they can minimize their UK tax liability.
- Salary: If a second or third-generation immigrant receives a salary from both UK and non-UK employers, they can use the remittance basis to avoid UK tax on the non-UK portion of their salary, provided they don’t remit this income to the UK.
Potential Pitfalls
While non-dom status offers tax advantages, there are potential pitfalls that second and third-generation immigrants should be aware of:
- Annual Remittance Basis Charge (RBC): Non-doms who choose the remittance basis and have been UK residents for a certain number of years may be subject to an annual RBC. Currently, RBC amounts and residency thresholds are:
a. £30,000 per year for individuals who have been UK resident in at least seven of the previous nine tax years.
b. £60,000 per year for individuals who have been UK resident in at least 12 of the previous 14 tax years.
c. £90,000 per year for individuals who have been UK resident in at least 17 of the previous 20 tax years.
2. Loss of Personal Allowance and CGT Annual Exemption: Non-doms who choose the remittance basis lose their income tax personal allowance and CGT annual exemption for that tax year.
3. Increased Complexity and Administrative Burden: Non-doms must maintain detailed records of their foreign income, gains, and remittances, which can result in increased complexity and administrative costs.
The end is nigh…
However, the landscape of non-dom tax planning, which has served as an influential factor for many high-net-worth individuals choosing to reside in the UK, may potentially undergo significant transformations. The potential abolition of the non-dom status by the Labour Party, if they win the upcoming election, could dramatically change the tax planning strategies for those currently benefitting from the status. While this potential move may be aimed at ensuring greater tax fairness and equity, it may also necessitate an overhaul of current tax planning mechanisms.
The potential abolition of the non-dom status by the Labour Party, if they win the upcoming election, could dramatically change the tax planning strategies for those currently benefiting from the status.
Such potential reforms underscore the importance of proactive tax planning. Individuals and businesses impacted should closely monitor these developments and consider alternative tax planning strategies in case of any changes to the non-dom regime. Engaging with tax advisors will be essential to navigate the possible shifts and mitigate any potential adverse tax implications.
Conclusion
For second and third-generation immigrants in the UK, the non-dom status can offer significant tax advantages, particularly for those with substantial overseas income and gains, despite the potential pitfalls, such as the annual remittance basis charge, loss of personal allowances and exemptions.
However, with the potential policy shift on the horizon, it is essential to be mindful of the shifting sands of tax policy. The prospect of the Labour Party doing away with the non-dom status in the upcoming general election presents a moment of uncertainty.
In these times, it’s key to be aware of potential challenges that come along with change – possible increases in taxes, adjustments to personal allowances and exemptions, and the potential for increased administrative complexities.
In the end, while non-dom status has been a significant windfall for many, the potential abolition of this policy could cause a seismic shift in tax planning strategies. Navigating this change effectively will hinge on understanding the evolving landscape and seeking expert advice to adapt successfully to the potential new normal.
If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.
Please note that Shipleys Tax do not give free advice by email or telephone.
Demystifying Deductible Expenses for Self-Employed Dentists
WHILST NOT AS painful as the dreaded root canal surgery, managing tax as a self-employed associate dentist can be a challenging task – especially when it comes to understanding tax deductible expenses.
In today’s Shipleys Tax article, we will set out a basic guide to various deductible expenses, including travel, subsistence and accommodation: and we look at some problem scenarios.
Travel Expenses
Travel expenses can be a significant cost for associate dentists who need to visit different practices, attend professional courses, or participate in conferences. The good news is that these expenses can be tax-deductible if they are deemed necessary for the business. Here are some guidelines for deducting travel expenses:
a. Ordinary commuting costs between your home and a fixed workplace are generally not deductible. However, travel expenses between different workplaces or temporary work locations are deductible.
b. Expenses related to attending professional courses or conferences, including registration fees, can be claimed if they are relevant to your work as a dentist.
c. If you use your personal vehicle for business purposes, you can claim either the actual expenses incurred (such as fuel, maintenance, and insurance) or a standard mileage rate as set by HMRC.
Remember to keep accurate records of your travel expenses, including receipts, invoices, and a log of your business-related trips.
The good news is that these expenses can be tax-deductible if they are deemed necessary for the business.
Subsistence Expenses
Subsistence expenses, such as meals and beverages, can be deductible if incurred while away from your regular place of work for business purposes. Keep the following guidelines in mind:
a. The expense must be “reasonable” and not lavish or extravagant. HMRC have specific rules and limits on the amount you can claim for meals in certain circumstances.
b. The cost of meals during regular working hours is generally not deductible unless you are away from your usual place of work for a business purpose.
c. If you attend a professional conference or course that includes meals as part of the registration fee, you can claim the entire fee as a deductible expense.
Accommodation Expenses
Accommodation expenses incurred while traveling for business purposes can be tax-deductible. However, specific criteria must be met:
a. The trip must be primarily for business purposes, and the accommodation must be necessary for you to carry out your work-related duties.
b. The cost of the accommodation should be reasonable and not extravagant. HMRC have specific guidelines on the maximum amounts that can be claimed.
If you attend a professional conference or course that includes meals as part of the registration fee, you can claim the entire fee as a deductible expense.
c. Generally, if the trip includes personal activities or vacation time, you must allocate the expenses between the business and personal portions of the trip. Only the business-related portion of the accommodation expenses can be claimed as a deduction.
Some problem scenarios
Let’s look at a few oft recurring travel scenarios that self-employed associate dentists seem to encounter and how the rules for tax deductions might apply:
Scenario 1: Combined Business and Personal Travel
You plan to attend a three-day dental conference in another city. After the conference, you decide to stay for two additional days to explore the city and visit friends.
In this scenario, you must allocate the accommodation expenses between the business and personal portions of the trip. You can claim the accommodation expenses for the three days of the conference as a tax deduction, but the expenses for the additional two days of personal activities are not deductible.
Scenario 2: Accompanying Spouse or Family Members
You are invited to speak at a dental seminar in another country. Your spouse and children accompany you on the trip, but they do not participate in any business-related activities.
In this case, you can claim only the portion of the accommodation expenses attributable to your own stay. If you have to pay extra to accommodate your spouse and children, you cannot claim that additional cost as a tax deduction.
Scenario 3: Business Trip with Side Trips for Personal Reasons
You attend a week-long dental course in another city. During your stay, you decide to take a day trip to a nearby tourist attraction for personal enjoyment.
In this situation, you can still claim the accommodation expenses for the entire week as a tax deduction, as the primary purpose of your trip remains business-related. However, you cannot deduct the expenses related to your side trip, such as admission fees to the tourist attraction or additional transportation costs.
However, you cannot deduct the expenses related to your side trip, such as admission fees to the tourist attraction or additional transportation costs.
Scenario 4: Prolonged Business Stay with Periods of Personal Time
You need to work at a temporary dental practice in a different city for three months. During this time, you rent an apartment for accommodation. On weekends, you often engage in personal activities, such as sightseeing or visiting friends.
In this case, you can generally claim the full cost of the apartment rental as a tax deduction, as the primary purpose of your stay is business-related. The fact that you engage in personal activities during your free time does not disqualify the accommodation expenses from being deductible.
Computer says no…?
All good and well you may think. Not quite unfortunately. The UK tax system has a sneaky habit of throwing a rule or two to scupper your expenses claim, in this case the principle of “duality”. The duality principle refers to the idea that an expense can only be tax deductible if it is incurred wholly and exclusively for the purpose of the trade, profession, or vocation. HMRC frequently uses this rule to deny expenses claims.
The duality principle refers to the idea that an expense can only be tax deductible if it is incurred wholly and exclusively for the purpose of the trade, profession, or vocation. HMRC frequently uses this rule to deny expenses claims.
This principle emphasises the need to accurately allocate expenses between business and personal activities for complex travel and accommodation scenarios. Proper understanding of this rule will also help overcome HMRC challenges and maximizes tax deductions for your dental self employment.
Please note that the information provided in this article should not be considered tax or legal advice. It is always recommended to consult with a tax professional or accountant to receive personalized advice tailored to your specific circumstances and to ensure compliance with the latest tax regulations.
If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.
Please note that Shipleys Tax do not give free advice by email or telephone.
Happy Eid Mubarak!
A very happy Eid Mubarak to all those celebrating the end of the fasting month of Ramadan from the Shipleys Tax Team.
Hope you have a great few days!
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