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…
Government extends Furlough to March 2021 and increases self-employed support
THE UK GOVERNMENT has extended the furlough scheme until the end of March 2021.
The Chancellor announced today (November 5) that the Coronavirus Job Retention Scheme (CJRS) will be made available to all parts of the UK under the highest levels of Covid-19 restrictions until March 2021, with the government paying 80 per cent of wages up to a cap of £2,500.
The new CJRS, which was initially extended to 2 December, will be reviewed in January 2021 to decide whether economic circumstances have improved enough to ask employers to contribute beyond NICs and pension contributions.
For the self employed, the next iteration of the self-employed grant, which covers the period November to January, will also now increase to 80 per cent of average profits up to £7,500 over the three-month period.
Summary of the new CJRS measures
- The furlough scheme will now be extended until the end of March 2021
- Employees receiving 80% of their current salary for hours not worked.
- The next self-employed income support grant will also increase from 55% to 80% of average profits – up to £7,500
- Employers will only be asked to cover National Insurance and employer pension contributions for hours not worked. For an average claim, this accounts for just 5% of total employment costs or £70 per employee per month.
- The incentive of the £1000 Job Retention bonus will fall away. This was one-off taxable payment to the employer, for each eligible employee that was furloughed and was then continuously employed until January 31 2021.
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.
Furlough scheme extended as UK goes into lockdown again
SOMEWHAT BELATEDLY, the embattled UK government announced on 31 October that from Thursday 5th November 2020, England will go into lockdown and businesses such as non-essential retail and hospitality will close. At Shipleys Tax we have summarised how the extension will work below.
The overly complicated Job Support Scheme (JSS), which was due to launch on 1 November, will now be postponed.
Instead, the government will extend the Coronavirus Job Retention Scheme (CJRS/furlough scheme) until December, to help employers furlough their staff. Crucially, this new extension allows new claims to be made where previously this was denied.
…the government will extend the CJRS/furlough scheme until December, to help employers furlough their staff. Crucially, this new extension allows new claims to be made where previously this was denied.
The furlough scheme extension
- The Coronavirus Job Retention Scheme (CJRS) will now remain open until Wednesday 2 December and the JSS will be postponed.
- The extended CJRS will operate as before, with businesses being paid upfront to cover wage costs. Although initially, while HMRC update their systems, businesses will be paid in arrears.
- Employers do not need to have furloughed staff before to claim under this extended scheme.
- Employees must have been on the employer’s PAYE payroll by 23:59 on 30 October 2020.
- Full furlough grants will cover 80% of staff pay, to a maximum of £2,500 per person, per month. However, employers will need to pay National Insurance and pension contributions.
- Flexible furloughing and full-time furloughing will be allowed. Useful for employers that stay open but operate with fewer hours.
- A Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made on or before 30 October 2020.
- Employers may top-up employee wages above the scheme grant at their own expense if they wish.
- There will be no gap in eligibility for support between the previously announced end date of the CJRS and this extension.
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.
How to pay inheritance tax in instalments
INHERITANCE TAX is sometimes referred to as the “optional tax”. At Shipleys Tax we have experts who can help manage your inheritance tax exposure. However, did you know that you can arrange to pay inheritance tax in instalments for up to 10 years? This only applies to certain types of assets, and not any assets that have already been sold – in today’s Shipleys Tax news we look at this valuable option in detail.
Paying Inheritance tax
Inheritance tax is normally payable by the end of the sixth month following that is which the person died. So, for example, if someone died on 4 April 2020, any inheritance tax due on their estate would be due by 31 October 2020.
Often the deceased estate will include non-cash assets, such as property, shares and suchlike and the beneficiaries may need to sell some of the assets to realise the cash with which to pay the inheritance tax bill. The tax system recognises this and allows the inheritance tax on assets that may take some time to sell to be paid in instalments.
… you can arrange to pay inheritance tax in instalments for up to 10 years. This only applies to certain types of assets, and not any assets that have already been sold …
Instalment option
The executors must state on form IHT400 if they wish to pay inheritance tax in instalments. Inheritance tax on certain assets that take time to sell can be paid in equal annual instalments over 10 years.
However, if the assets have been sold, the tax must be paid in full.
Assets qualifying for payment in instalments
Inheritance tax can be paid in instalments on:
- Land, for example a house that a beneficiary keeps to live in or rent out;
- shares or securities where the deceased controlled more than 50% of the company;
- unlisted shares and securities worth more than £20,000 that represent either 10% of nominal value of the shares or 10% of the value of the ordinary share capital of the company.
Payment can also be made in instalments where at least 20% of the inheritance tax owed by the estate is on assets qualifying for payment in instalments and paying them in a single lump sum will cause financial difficulty.
Where there is inheritance tax still to pay on gifts in the form of buildings, shares or securities or all or part of a business, this too can be paid in instalments.
If the deceased estate includes a business that is run for profit, if IHT is due, this can be paid in instalments on the net value of the business, but not on the business assets.
Where the instalment route is taken, interest is payable on the second and subsequent instalments on both the full balance of the outstanding tax.
Payment dates
The first instalment is due on the normal IHT due date – the end of the sixth month after the month in which the deceased died. Subsequent instalments are due on this date each year for the next nine years.
Interest
Where the instalment route is taken, interest is payable on the second and subsequent instalments on both the full balance of the outstanding tax. Where an instalment is paid late (including the first instalment), interest is also payable on the instalment from the due date to the date of payment.
Clearing the bill
The outstanding bill and any associated interest can be paid off at any time. Clearing the outstanding debt may be a preferred option if the assets are sold at a later date. A final settlement figure can then be obtained from HMRC.
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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