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

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…

Grants for businesses affected by COVID-19

Tax Investigation Management Shipleys Tax Advisors

MANY BUSINESSES have been forced to close as a result of the national and local restrictions introduced to slow the spread of Coronavirus. Where this is the case, the business may be eligible for a grant from their local authority. In today’s Shipleys Tax note we look at some options currently available for struggling businesses.

The following grant support is available to businesses in England during the second national lockdown. Grants to businesses in Wales, Scotland and Northern Ireland are subject to devolved rules.

Businesses closed due to national retractions

Business that were previously open as usual, but which were required to close between 5 November 2020 and 2 December 2020 as a result of the second national lockdown in England may be eligible for a grant from their local council for the 28-day period for which the national lockdown applies.

A business may qualify for a grant if it meets the following conditions:

  • it is based in England;
  • it occupies premises in respect of which it pays business rates;
  • it has been required to close between 5 November 2020 and 2 December 2020 as a result of the national lockdown; and
  • it has been unable to provide its usual in-person service from those premises as a result.

Businesses that qualify may include non-essential shops, leisure and hospitality venues and sports centres.

Business that normally operate as an in-person venue but which have had to modify their services as a result of the lockdown also qualify. An example here would be a restaurant that is not allowed to provide eat-in dining but which stays open for takeaways.

Businesses are only entitled to claim one grant for each non-domestic property.

Amount of the grant

The amount of the grant is based on the rateable value of the business premises on the first day of the second national lockdown.

Where the rateable value of the business premises is £15,000 or less, the business will receive a grant of £1,334 for each 28-day period for which the restrictions apply.

Where the rateable value of the business premises is between £15,000 and £51,000, the business will receive a grant of £2,000 for each 28-day period for which the restrictions apply.

Where the rateable value of the business premises is £51,000 or above, the business will receive a grant for each 28-day period for which the restrictions apply.

Applications should be made to the local council following the application procedure on the relevant council’s website.

Excluded businesses

A business is not eligible for a grant if it can continue to operate during the restrictions because the business does not depend on providing in-person services from their premises. Businesses that would fall into this category would include accountants and solicitors.

Businesses that are not required to close, but which choose to, are also ineligible for a grant.

A business which has exceeded the permitted state aid limit – set at €200,000 over a three-year period – is not eligible for further funding but may qualify for help under temporary Covid-19 measures.

Local restrictions

Where local restrictions are in force, businesses may qualify for separate grants if they are either forced to close or, where they can remain open, their business is severely impacted as a result of those restrictions. Details of the grants available where local restrictions apply can be found on the Gov.uk website.

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.

Dubai changes company ownership laws

Tax Investigation Management Shipleys Tax Advisors

IN A BID to attract wider investment and boost the gulf economies, UAE members have opted to remove one of the main barriers to trade – the requirement for a local sponsor.

Understandably, the changes to ownership laws being introduced across the UAE have received a warm welcome from the business community, who believe it will further facilitate doing business in the country and attract foreign investment.

In today’s Shipleys Tax we look at what’s changed and how it impacts on those looking to trade in the Gulf.

What are the reforms?

The reforms to companies’ law are broadly wide-ranging, but it is the removal of the requirement for a local sponsor for companies that operate onshore that is seen as the biggest potential incentive for investment flows into the country.

For companies that currently have sponsors it will reduce their operating costs and create a more competitive environment, it will further boost the number of onshore companies opening up.

This is part of a giant step forward along a path that the UAE has been undertaking for a number of years, but it is anticipated that this level of rapid change will have a significant impact.

It makes the UAE a much more attractive as a destination for foreign investment.

The removal of the requirement for a local sponsor will give entrepreneurs a greater sense of control over their own business and remove barriers to trade, aligning the economies with that of the UK and others.

It is also likely to provide an overall demand boost for commercial property, which has witnessed a few difficult years since the decline in oil prices which began in 2014.

The changes are part of a package of legislative reforms aimed at ensuring the UAE retains its position as the leading hub for regional and international business.

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.

Tax free rental income

Tax Investigation Management Shipleys Tax Advisors

WITH MANY now going through job changes and unemployment, renting out a room in your house or flat might be a great way to earn some tax-free income as well as providing an affordable space for someone else in need.

In today’s Shipleys Tax note we look at how renting a spare room in your house can earn you some tax free cash.

What is Rent-a-room relief?

The rent-a-room scheme allows those with a spare room in their home to let it out furnished and to receive rental income of £7,500 tax-free each year without the need to declare it to HMRC. Where more than one person receives the income, each can receive £3,750 tax-free. The limits are not reduced if the accommodation is let for less than 12 months.

Eligibility

The rent-a-room scheme can be used by anyone who lets a furnished room in their own to a lodger. They do no need to own their own home – it can also apply if they rent (but they should check with their landlord whether their lease allows this). The rent-a-room scheme can also be used by those running a guest-house or a bed-and-breakfast establishment and provide services, such as meals and cleaning, as well as accommodation.

The scheme allows those with a spare room to let it out furnished and to receive rental income of £7,500 tax-free each year…

The scheme is not available in relation to accommodation which is not in the individual’s main home or which is let unfurnished.

Automatic exemption

Where the rental receipts are £7,500 or less (or £3,750 or less where more than one person benefits from the rental income), the exemption is automatic. There is no need to tell HMRC about the rental income. Rental receipts are the rental income before deducting expenses, plus any charges made for services such as cleaning or meals.

Using the scheme where rental income exceeds the threshold

The rent-a-room scheme can also be used where the rental receipts exceeds the rent-a-room threshold (£7,500 or £3,750 as appropriate). Where this is a case, the taxable amount is simply the amount by which the rental receipts exceed the rent-a-room threshold. This approach will be beneficial if the rent-a-room threshold is more than actual expenses. However, where using actual figures will produce a loss, it is not beneficial to claim rent-a-room relief as this cannot create a loss and the benefit of the loss will be lost.

The exemption is automatic. There is no need to tell HMRC about the rental income.

Where rental receipts are more than the rent-a-room threshold, a tax return must be completed. If the relief is to be claimed, this can be done by ticking the relevant box in the return.

The election can be made each year, depending on whether it is beneficial to do so.

Example 1

Iqra lets out her spare room to a lodger for £100 a week, earning her £5,200 a year.

As the receipts are less than £7,500, she takes advantage of the automatic exemption for rent-a-room relief. She does not have to declare the income to HMRC.

Example 2

Mary lets out a room in her home for £10,000 a year. She incurs expenses of £1,000 a year.

If she does not claim rent-a-room relief, she will pay tax on her profit of £9,000. However, by claiming rent-a-room relief, she is only taxed to the extent that her rental income exceeds £7,500. She is therefore able to reduce her taxable profit from £9,000 to £2,500 by claiming the relief.

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.

Load More Posts

Testimonials

Contact us

  • info@shipleystax.com
  • 0114 272 4984
  • Wharf House, Victoria Quays,
    Wharf Street Sheffield,
    S2 5SY

Contact Shipleys today

Want to know how Shipleys can help you with practical tax planning through innovative ideas? Let’s talk. Call or email us directly and a member of our team will be in touch within 48 hours.

Contact us