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.
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5 ways you can reduce Inheritance Tax
“IN THIS WORLD nothing can be said to be certain,
except death and taxes.”
(Attributed to Benjamin Franklin.)
While we may not be able to avoid either of these inevitabilities, there are ways to lessen the burden of one of them: inheritance tax (IHT). Inheritance tax can be a significant concern for individuals and families, as it can erode the value of an estate and limit the assets that can be passed on to loved ones. Fortunately, there are some basic strategies that can be employed to reduce IHT, from making gifts during your lifetime to setting up trusts.
In today’s Shipleys Tax note, we will look at some effective ways of reducing IHT, thus ensuring that your loved ones inherit as much of your wealth as possible.
What is IHT?
Inheritance tax (IHT) is a tax on the value of an individual’s estate exceeding the IHT threshold (£325,000) when they pass away. In the UK, the current rate of IHT is 40%, which can significantly reduce the amount of assets that can be passed on to heirs.
5 tips to reduce IHT
However, there are several ways in which you can reduce the amount of IHT that will be payable on your estate. Here are some basic tips to help you minimise your IHT liability:
(IHT) is a tax on the value of an individual’s estate exceeding the IHT threshold (£325,000) when they pass away. In the UK, the current rate of IHT is 40%.
- Use your annual exemption: Each individual is entitled to an annual exemption of £3,000 for IHT purposes. This means that you can give away up to £3,000 each year without incurring any IHT liability. This can be a useful way to gradually reduce the value of your estate over time.
Illustration: If Adam has an estate worth £500,000, he can give away £3,000 each year to his children without incurring any IHT liability. Over a period of 10 years, John will have reduced the value of his estate by £30,000.
- Make gifts out of your surplus income: You can make gifts out of your surplus income without incurring any IHT liability. To qualify as surplus income, the gifts must be regular, made from your income (after tax) and must not affect your standard of living. This can be a useful way to pass on wealth to your loved ones during your lifetime.
Illustration: If Sara has an income of £60,000 per year and her living expenses amount to £40,000, she has a surplus income of £20,000. She can make gifts of up to £20,000 each year to her children without incurring any IHT liability.
You can make gifts out of your surplus income without incurring any IHT liability. To qualify as surplus income, the gifts must be regular, made from your income (after tax) and must not affect your standard of living.
- Make use of the annual small gifts exemption: You can make gifts of up to £250 to any number of individuals each year without incurring any IHT liability. This can be a useful way to pass on small amounts of wealth to family and friends.
Illustration: If Tom has 10 grandchildren, he can make gifts of £250 to each of them each year, without incurring any IHT liability.
- Set up a trust: You can set up a trust to hold assets for the benefit of your heirs. This can be a useful way to reduce the value of your estate for IHT purposes. There are different types of trusts available, and it’s important to seek professional advice to ensure that you choose the right one for your needs.
Illustration: If Imran has an estate worth £1 million, he can set up a trust and transfer £500,000 of assets into it. As long as he survives for 7 years after making the transfer, the value of the assets in the trust will not be subject to IHT.
- Give gifts to charity: Gifts to charity are exempt from IHT. This can be a useful way to reduce the value of your estate and support a cause that you care about.
Illustration: If Maryam has an estate worth £1 million, she can leave a gift of £100,000 to her favourite charity in her will. This will reduce the value of her estate to £900,000 and the amount of IHT payable.
In general, reducing Inheritance Tax (IHT) can be a complex and sensitive issue, but it is an important consideration for individuals with significant assets. While the current IHT threshold may seem generous, many estates can quickly exceed it, resulting in a substantial tax bill for heirs. It is therefore important to seek professional advice to ensure that you choose the right strategy for your individual circumstances.
Working with a tax specialist at Shipleys Tax can help you navigate the various options and create a tailored plan to minimize IHT while ensuring that your assets are passed on to your intended beneficiaries. By taking proactive steps to reduce IHT, you can ensure that your hard-earned wealth is preserved for future generations, rather than being absorbed by the taxman.
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.
Deadline to plug your NI contributions gap
CURRENTLY, there’s an extended window for individuals to plug holes in their state pension qualifying years record using voluntary NI contributions. However, this is coming to a close after 5 April 2023.
In todays Shipley’s Tax blog we look at what you need to do check if can you have full National Insurance credits on retirement.
UPDATE: 08/03/2023
Deadline now extended:
The government has just announced an extension of the deadline below to 31 July 2023. Further information below.
What’s happening?
As the end of the current tax year approaches, UK taxpayers have until 5 April 2023, to make voluntary Class 3 National Insurance (NI) contributions to fill any gaps in their NI record. This is particularly important for individuals who have missed payments due to career breaks or other reasons.
NI contributions are paid by employees and the self-employed if their earnings exceed a set threshold. Providing you earn enough in any given year, you will be treated as having a “qualifying year” for NI purposes which will be added to your NI record which can directly affect your entitlement to the state pension and other benefits. This is important because the contributions help individuals build up entitlements to state benefits such as the state pension, bereavement benefits, and Jobseeker’s Allowance. The amount of contributions a person makes over their working life determines their entitlement to these benefits.
UK taxpayers have until 5 April 2023, to make voluntary Class 3 National Insurance (NI) contributions to fill any gaps in their NI record.
What happens if I have gaps in my NI record?
Missing years can result in a shortfall when retirement age is attained, meaning only a partial pension is paid. So if the gap is substantial, there may be no entitlement at all. To permit people to catch up on missing years, the government allows payment of Class 3 NI at a fixed rate – known as “voluntary contributions” – to be paid. Making voluntary contributions can help to ensure you have a complete record of contributions and therefore maximize your entitlement to state benefits. This is crucial for individuals who have taken career breaks or periods of unemployment, as this can have a significant impact on your NI record.
How far can you go back?
Normally, you can only go back the last six years. However, there is a current HMRC incentive extending the window back to 6 April 2006 -meaning you can check your NI records going back over seventeen years.
From 6 April 2023 this will revert to the standard six years. It is therefore crucial that you check your NI record and make good any missing years’ contributions for tax years prior to 2017/18 before that date or the opportunity may be lost for good.
Update 08/03/2023: This deadline has now been extended to 31 July 2023.
However, there is a current HMRC incentive extending the window back to 6 April 2006 -meaning you can check your NI records going back over seventeen years.
In summary, if you have missed any NI contributions over your working life, it’s important to consider making voluntary contributions before the extended deadline closes. This will help you to maximize your entitlement to state benefits and ensure that you have a complete record of contributions. However, it’s important to consider your own circumstances and seek professional advice before making any decisions.
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.
Why banking your capital gains could save you tax– act now
UNDER PRESSURE FROM his party, the Chancellor in his November 2022 budget made a significant alteration to the annual allowance for gains made on disposal of property assets.
In today’s Shipleys Tax brief, we look at the consequences of the upcoming change in the Capital Gains Tax (“CGT”) allowance and what it means for you and how you could save tax by being a little pro-active.
So, what’s happened?
Currently, the annual exemption for profits on disposal of property (amongst other assets) is £12,300. The government will reduce this to £6,000 on 6 April 2023 with a further reduction to £3,000 on 6 April 2024.
What does this mean for me?
Any gains made in excess of the annual exemptions above will be subject to capital gains tax at 10%, 20%, 18% and/or 28%, depending on the nature of the assets sold and on your individual taxable position.
The annual exemption for profits on disposal of property (amongst other assets) is £12,300. The government will reduce this to £6,000 on 6 April 2023 with a further reduction to £3,000 on 6 April 2024.
Also, as the basic threshold for inheritance tax (IHT) has been frozen at £325,000 since 6 April 2009 (and will be until at least 2026), property tax planning is increasingly important to mitigate the charge.
Gifting an asset to remove it from your estate as soon as possible is something many will consider. For example, an individual who makes a gift but survives them by seven years will not be charged inheritance tax on its value on death.
For CGT purposes, when an asset is gifted, this is treated as a “deemed disposal” meaning that even though no money has exchanged, the market value of the asset will replace sale proceeds.
Accordingly, the CGT allowance is a valuable relief. The allowance at its current level is worth up to £3,444 in cash terms. Once fully reduced, it will be worth a maximum of £840. This reduction greatly diminishes the value of the allowance as an effective planning tool.
So, what should you do?
If you were already thinking of making some gifts, it is worth giving some serious thought to doing so ahead of the reduction in the allowance to maximise tax relief.
As each person has their own annual exemption and transfers between spouses are generally tax-free of CGT, the benefit can be doubled.
Married couples tax planning
Consider a rental property worth £300,00, purchased for £150,000, owned in the sole name of a spouse. If the spouse gifted his half of the property to his wife and together they gifted the whole property to their son, they would remove the £300,000 from their estates, saving up to £120,000 in inheritance tax (assuming they survive seven years).
If the gift took place on or before 5 April 2023, the capital gain of £150,000 is reduced by the two annual exemptions, which means they will have a total CGT allowance of £24,600. At the 40% band, this represents a tax relief of £9,840.
As each person has their own annual exemption and transfers between spouses are generally tax-free of CGT, the benefit can be doubled
If they took this same action in May 2024, the annual exemptions would reduce and their maximum CGT allowance would be £6,000 between the two. This is a loss of £18,600 tax relief, which at 40% tax band means extra tax payable of £7,440!
The CGT annual tax exemption is a valuable tax relief, and used carefully in the right manner, could help you save significant amounts of tax by being pro-active.
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.
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