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…
Tis the season to be scammed
Tips on avoiding tax scams
AS THE FESTIVE SEASON draws nearer, HMRC is warning millions of Self Assessment customers to be aware of fraudsters in the run up to the 31 January tax deadline. Cyber criminals are taking advantage of “reminder” SMS messages and bogus emails during the festive season to trick taxpayers out of their money.
Just in the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails. More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.
Cyber criminals are taking advantage of “reminder” SMS messages and bogus emails during the festive season to trick taxpayers out of their money.
At Shipleys Tax we look at some of the most common techniques fraudsters use to entrap taxpayers and what you should do if you suspect foul play.
Faking it
Probably the most common methods we come across that fraudsters use includes:
- Phoning taxpayers offering them a fake tax refund
- Leaving a voicemail message threatening enforcement action or imprisonment if a bogus tax bill is not paid immediately
- Pretending to be HMRC by texting
- Emailing a link which will take customers to a false page, where their bank details and money will be stolen.
…taxpayers should never give out private information, reply to text messages, download attachments or click on links in texts or emails, even if it looks like a message from HMRC…
Taxpayers need to recognise the signs to avoid becoming victims themselves. HMRC, like other genuine organisations and banks, will never contact customers asking for their PIN, password or bank details. HMRC also do not email taxpayers direct.
Needless to say, but taxpayers should never give out private information, reply to text messages, download attachments or click on links in texts or emails which they are not expecting, even if it looks like a message from HMRC complete with logo and branding.
What should you do if you suspect a scam?
- Number one rule: do not respond. Always check with your professional adviser (or HMRC direct) regarding the status of your tax affairs.
- HMRC operates an inbox for people to report suspicious emails to, at phishing@hmrc.gov, while SMS messages should be forwarded to 60599.
- If you have suffered financial contact your bank immediately and report it to Action Fraud online at actionfraud.police.uk or by calling 0300 123 2040.
As always, if in doubt check and check again before taking any action.
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 we do not give free advice by email or telephone.
Tax Tip: How businesses can get cash-back upfront on losses
FOR MANY BUSINESSES, COVID-19 has caused a massive shock and presented previously healthy companies with a terrible set of challenges. With no income and losses mounting, managing cash flow to stay afloat is vital.
One way to boost cashflow is to tap into tax previously paid by a business. There is a little-known way in which businesses can claim tax back from HMRC even before the losses have been realised. Known as a “provisional loss carry-back claim”, businesses that were previously profitable but are now potentially loss-making, can apply for this to get cash back. This could significantly help cashflow and may even help the business survive.
In today’s Shipleys Tax brief, we look at this valuable mechanism and how it works.
One way to boost cashflow is… a little-known way in which businesses can claim tax back from HMRC even before the losses have been realised
What is a provisional loss carry-back claim?
A “provisional loss carry-back claim” is a claim by which a business, in exceptional circumstances and set to make a loss, can reclaim tax back for corporation tax paid to HMRC on profits made in a previous accounting year. COVID-19 qualifies as such an exceptional circumstance.
HMRC has updated its company tax guidelines detailing how businesses who wish to make claims for repayments of corporation tax based on anticipated losses can make the claim.
…a business can reclaim tax back for corporation tax paid to HMRC on profits made in a previous accounting year.
How do you qualify?
Any submission to HMRC requesting an early claim to carry back of losses will need to show
- there is sufficient evidence that losses will be incurred; and
- that it will be included in the company tax return for the loss making year when it is eventually submitted.
In the current climate this should not be too difficult to do. For example, the business will need to show evidence of the following for the current period:
- Significant losses – that would exceed other income
- Management accounts showing losses
- Accurate forecasts
- Board minutes where financial performance was noted
- Consideration of whether performance could improve over the remainder of the accounting period
Providing an acceptable form of evidence is therefore critical to the timely success of a repayment and liaising with your professional adviser is crucial.
Providing an acceptable form of evidence is therefore critical to the timely success of a repayment and liaising with your professional adviser is crucial.
What are the next steps?
Businesses would need to look to prepare and finalise their accounts to quantify any losses that could be claimed by the company. It is possible, together with the aforementioned supporting evidence, to agree a provisional loss carry-back claim with HMRC, potentially enabling a business to claim anticipated losses immediately rather than having to wait for years thereby boosting cashflow now when its most needed.
If you require any assistance compiling and submitting an early loss carry back claim to HMRC in order to try and aide cash flow, please contact us 0114 272 4984 or email info@shipleystax.com and we would be delighted to help you with your claim.
Please note that we do not give free advice by email or telephone.
Taxi drivers to face HMRC checks before licence renewals
IN A BID to tackle the hidden economy, taxi and private hire drivers will need to undergo tax checks for applications to renew their licences the Government has published.
The new rules will target individuals, partnerships (including LLPs) and companies applying for licences in England and Wales to either drive taxis or private hire vehicles (PHVs), or both, operate a PHV business or deal in scrap metal.
In todays tax note, Shipleys Tax assesses the potential wide ranging impact this will have on individuals, their businesses and families.
The new rules will target individuals, partnerships and companies applying for licences in England and Wales to either drive taxis or private hire vehicles (PHVs), or both, operate a PHV business…
What is being proposed?
Licensing authorities will introduce a “tax check” on registration for renewed applications in England and Wales for licences to:
- drive taxis and private hire vehicles (PHV)(for example, minicabs)
- operate a PHV business
- carry on the business of a scrap metal dealer on a site
- carry on business as a mobile collector of scrap metal.
Licensing authorities will introduce a “tax check” on registration for renewed taxi/PH applications in England and Wales for licences…
What does this mean?
This means an applicant who wishes to renew a licence will need to undergo a tax check before the licence is renewed. The licensing body (typically a local authority) will have to obtain confirmation from HMRC that the applicant has completed the check before being able to consider their renewed licence application. This in effect means that the licence holder will have to hope for a clean bill of health from the taxman before any licence renewal application will be considered.
Licensing bodies will be required to:
- signpost first-time applicants to HMRC guidance about their potential tax obligations
- obtain confirmation that the applicant is aware of the guidance before considering the application
- where the application is not a first-time application (a renewed application) the licensing body must obtain confirmation from HMRC that the applicant has completed a “tax check”.
Why is the government doing this?
This is a small but significant step as part of a wider programme to tackle the so called “hidden economy.” The government believes there are individuals and businesses with sources of taxable income that are entirely hidden from HMRC which is depriving the government of funding for vital public services.
They believe people operating in the hidden economy do so because they are perhaps unaware of or confused about their tax obligations. Or if they have been hiding their income for a long period, they are also likely to find it harder to come forward and tell HMRC that they are, or should have been, chargeable to tax (‘registered’).
This is a programme to tackle the so called “hidden economy.” The government believes there are individuals and businesses with sources of taxable income that are entirely hidden…
By making access to the licences taxi/PHV drivers need conditional upon completing a tax check, the government believes the rules above will help applicants for certain public sector licences better understand their tax obligations.
Impact on individuals, households and families
At Shipleys Tax we support any well thought out measures which help people meet their tax obligations. However, the use of a blunt instrument to target what could be complicated tax affairs seems grossly unfair. Experience has shown HMRC are underfunded, understaffed and prone fatal inaccuracies resulting in the taxpayer being unduly penalised and ultimately being forced to into defending themselves, sometimes through no fault of their own.
The measures will have a material impact on employed drivers and on drivers, PHV operators and scrap metal dealers who are self-employed. All of these will need to complete a tax check when applying to renew licences. If individuals do not complete a tax check the licensing body will be unable to consider their application to renew their licence and their current licence will expire.
… the use of a blunt instrument to target what could be complicated tax affairs seems grossly unfair.
This could have an impact on family formation, stability or breakdown if individuals will no longer be licensed and individuals and their families would have less disposable income.
When are the measures expected to be introduced?
Budget 2020 announced that the government will legislate in Finance Bill 2020-21. The technical consultation for hidden economy conditionality will run until 15th September 2020 with changes taking effect from April 2022.
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 we do not give free advice by email or telephone.
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