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…
IR35 watch – HMRC suffers another knock out
IR35 has been the bane of many self employed workers and their advisers since its controversial inception many years ago.
Recently, several high profile TV presenters have been under the spotlight in respect of whether IR35 applies to their working arrangements. The latest of these resulted in a loss for HMRC.
In today’s Shipleys Tax note we briefly look at the recent IR35 case making headlines and what it means for taxpayers.
The first half…
HMRC’s assertions that IR35 applies to certain working arrangements has been something of a mixed bag, especially for the TV industry. Alongside its successes, HMRC has suffered several high-profile defeats, including against the television presenters Kaye Adams, Helen Fospero, and Lorraine Kelly; whilst Gary Lineker’s case still seems to be languishing in extra time. The latest case to be heard was that of Adrian Chiles, most recognisable as a TV football presenter and Radio 5 host.
What is IR35?
The much maligned rule is another name for the “off-payroll working” legislation. The term ‘IR35’ actually refers to the press release that originally announced the legislation in 1999.
Simply put, the IR35 rules are designed to work out whether someone is genuinely self-employed or employed rather than a “disguised employee” and should be treated as such for the purposes of paying tax. There are multiple factors that the courts use to help determine this, e.g. control, substitution and supervision being among them.
This is because that those who set up and work through a limited company are perceived to be more tax efficient as opposed to those who are employed. HMRC attempt to argue that some taxpayers try to take advantage of this tax efficiency by appearing to be self-employed on the surface, when actually they would be an employee were they not providing their services through a limited company. Despite the fact this is patently not always the case, the off-payroll working rules are designed to tackle this, but the rules have been forever attacked for being overly complicated, causing unjust outcomes and, at times, being unworkable.
The second half comeback…
In Adrian Chiles’ (“A”) case the Tribunal disagreed with HMRC’s assertions that A was an employee (in all but name) of both the BBC and ITV. The Tribunal held that A was in business on his own account via his limited company, based on the number of clients he worked for. He had also embarked on a number of unsuccessful commercial ventures, indicating that he bore considerable financial risk. The Tribunal also downplayed the importance of a lack of substitution clause, i.e. that A did not have the right to provide a substitute if he were unable to undertake his duties.
The Tribunal took a “big picture” approach and decided that on the face of things the arrangements with both the BBC and ITV were part of A’s business, and not part of an arrangement to which IR35 would apply.
Extra time…?
Tribunal decisions are not binding, and thus it is likely that HMRC will appeal. However, it does show that these high-profile cases should not be taken at face value and the complexity of the off-payroll legislation makes it paramount that specialist advice is sought to avoid the pitfalls in this area.
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.
New year brings new VAT & Customs rules
ON THE FACE of it, the UK left the EU on 31 December 2020. From 1 January 2022 there were additional customs rules to be aware of for businesses trading with the bloc, our former partners in the EU.
In today’s Shipleys Tax brief we look at what these rules are and how Shipleys Tax can help.
What is Customs Duty?
Customs duty is payable on goods imported into the UK. The rate of customs duty payable is determined by the tariff classification of those goods.
Customs duty cannot be recovered, therefore where payable, it is a cost to businesses resulting in reduced profit margins.
Following Brexit, all imports to mainland Britain (England, Scotland and Wales) from overseas may be subject to import duties. Certain processes, mainly regarding paperwork, were not initially required in order to allow affected businesses time to get used to the new relationship with their customers. These have now taken effect:
Customs duty cannot be recovered, therefore where payable, it is a cost to businesses resulting in reduced profit margins.
- full customs import declarations are needed for all goods at the time a business or the courier/freight forwarder brings them into Great Britain
- customs controls at all ports and other border locations
- the possible need for a suppliers’ declaration proving the origin of your goods (either UK or EU) if using the zero tariffs agreed in the UK’s trade deal with the EU
- commodity codes, which are used to classify goods for customs declarations, are changing.
As such, it is now pivotal for importers to proactively consider their customs duty position.
How can Shipleys Tax help? Can your business benefit from customs duty planning to make tax savings?
Shipleys Tax can provide guidance to importers on many aspects which drive the duty rates payable on imports, using our experience to identify opportunities to optimise the duty position as follows:
- Tariff Classification – The commodity code used for imports drives the import duty payable on those goods to HMRC. Establishing which code to use can be a complex task and can result in significant variations of duty paid to HMRC. Using our expertise, we can identify saving opportunities by using appropriate tariff codes and where necessary, obtain rulings from HMRC to confirm the treatment.
- Preference – Preferential trade agreements (i.e. the EU trade deal with the UK post Brexit) exist between the UK and its key trading partners. What this means is that where goods are imported from trade partners (i.e. the EU), preferential duty rates can be claimed, resulting in savings. We can establish where and how preference can be claimed to make tax savings for your business.
- Valuation – We can advise on the appropriate customs valuation method used for goods imported into the UK.
- Customs Special Procedures – Customs special procedures allow businesses to suspend, relieve, reduce or defer customs duty payable on imports. We will establish whether these special procedures offer customs duty or cash flow savings for your business and use our experience to assist in their implementation.
Shipleys Tax can provide guidance to importers on many aspects which drive the duty rates payable on imports, using our experience to identify opportunities to optimise the duty position.
HMRC claims
Our reviews often result in opportunities for three-year backdated claims for overpaid customs duty. We will manage the claim process for your business, liaising with HMRC to obtain the duty refunds your business is due!
Get in touch
With wholesale changes impacting importers following the UK’s departure from the EU, now is the ideal time to ensure you are seeking advice from the experts, to ensure you pay no more customs duty than is due, whilst remaining compliant with HMRC rules.
At Shipleys Tax we have experienced indirect tax advisers and are well placed to ensure that your business is operating as effectively as possible, while remaining compliant with the duty regulations in this area.
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.
Business rates loophole for second home owners to close
MANY SECOND home owners use a loophole to avoid council tax on the property. However, the government has announced that new rules will apply to prevent abuse from April next year.
In today’s Shipleys Tax brief we look at how this works and what you can do about the changes.
What’s going on?
Under the current system, owners of second properties in England can avoid a council tax bill if there is an intention to let the property to holiday makers. This brings the property into the business rates regime and, as a result, small businesses rates relief can be claimed. The problem is that many second home owners are declaring an “intention” to let their property, when in reality they just remain empty for most of the time.
New rules
From April 2023, the rules will change so that only genuine holiday lettings will qualify for the relief, bringing non-qualifying properties back into the charge to council tax. A property will only be assessed under the business rates regime if the owner can provide evidence that:
- it will be available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days in the coming year
- during the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days; and
- during the previous year, it was actually let commercially, as self-catering accommodation, for short periods totalling at least 70 days.
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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