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…
COVID-19: £50k Micro-business Bounce Back Loan scheme – how it works
The government today is introducing the new micro-loan scheme for small businesses to help small businesses who may have been unable to access other government-backed Coronavirus loan schemes.
The scheme will launch from Monday 4 May and enable businesses to:
- Access loans of between £2,000 and £50,000 for up to six years, from a network of accredited lenders
- The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months
- After this period a fixed 2.5 per cent interest kicks in – meaning the government will pay the interest for the first 12 months
- For most firms, ‘loans should arrive within 24 hours of approval’
- Apply via a ‘simple, quick, standard form’ with ‘no complex eligibility criteria’ or ‘forward-looking tests of business eligibility’
The scheme is a not a grant but a deferred repayment loan, as such not all businesses will want to take on extra debt in uncertain times.
Unlike the Coronavirus Business Interruption Loan Scheme (CBILS), the government is to guarantee 100 per cent of these loans (as opposed to 80 per cent).
The scheme is a not a grant but a deferred repayment loan, as such not all businesses will want to take on extra debt in uncertain times.
Bounce Back Loan (“BBL”) – how it works
- Businesses will be able to borrow between £2,000 and £50,000 and access the cash within days
- There is no cap on turnover for a micro-business applying for a BBL
- Loans will be from £2,000 up to 25 per cent of a business’ turnover or £50,000, whichever is lower
- Loans will be interest free for the first 12 months, and businesses can apply online through a short and simple form
- Borrowers will fill in a two-page application form in which they will certify that they have a viable business, lifting obligations on lenders to carry out their own checks
- The length of the loan is for six years but early repayment is allowed, without early repayment fees
- No personal guarantees are allowed, and no recovery action can be taken over a principal private residence or principal private vehicle
- All firms trading as of March 1 will be able to get cash
- Banks will no longer require forward financials or business plans
- If you’ve already had a coronavirus business interruption loan of up to £50,000, that will be ported across to the Bounce Back Loans scheme
- Eligible companies will be subject to standard customer fraud, anti-money laundering (AML) and Know Your Customer (KYC) checks prior to any loan being made
- The borrower always remains 100% liable for the debt
Is your microbusiness eligible for a Bounce Back Loan?
Any business can apply for a microbusiness loan, however:
- You must be UK-based and established by March 1 2020
- Have been adversely impacted by the Coronavirus (Covid-19)
- Confirm you are currently not using a government-backed Coronavirus loan scheme (unless using BBLS to refinance a whole facility)
- You must not be in bankruptcy, liquidation or undergoing debt restructuring
Businesses will be required to fill in a short online application form on their lender’s website, which self-certifies whether they are eligible for a Bounce Back Loan facility. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
Who cannot apply
The following businesses are not eligible to apply:
- banks, insurers and reinsurers (but not insurance brokers)
- public-sector bodies
- state-funded primary and secondary schools
Where to find your Bounce Back Loan
Accredited lenders of Bounce Back Loans are listed on the British Business Bank website.
How to apply for a Bounce Back Loan
Businesses will be required to fill in a short online application form on their lender’s website, which self-certifies whether they are eligible for a Bounce Back Loan facility. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
Some State aid restrictions may apply to applications.
If you are looking to apply for a loan and need support please call us on 0114 272 4984 or email info@shipleystax.com.
COVID-19: Can changing a Will after death help you save paying unnecessary tax?
Often, the tax consequences of wills aren’t considered when they’re written and can leave an unnecessary tax bill. Read our blog to find out what a post-death variation is, when you can use it, and what generally the benefits could be.
Note: this article is intended for general guidance only and does not constitute accountancy, tax or other professional advice. We recommend you seek specific advice based on your circumstances.
With the backdrop of COVID-19 being the new norm, death is not something many wish to talk about although it surrounds us now. And as many come to terms with personal loss, they are forced to deal with issues, perhaps prematurely, surrounding the financial aspects of losing a loved one.
One area where we have been inundated is in relation to wills and whether these can be changed post death.
The short answer is, as long as certain conditions are met, it is possible to change a will after death. This is known as a post-death variation, and it can be a useful tax planning tool.
A post-death variation can be made to:
- reduce the amount of tax payable
- to change who benefits under the will
- place the assets of the deceased into trust
- to provide for someone who was left out of the will
…as long as certain conditions are met, it is possible to change a will after death. This is known as a post-death variation, and it can be a useful tax planning tool.
Conditions that must be met
In order to vary a will after the deceased has died, the following conditions must be met:
- it must be made within two years of the deceased’s death
- all beneficiaries adversely affected by the variation must agree to it and be party to it
- it must be made in writing
- it must contain a statement of intent for tax purposes, specifying that the beneficiary/beneficiaries elect for the relevant statutory provisions to apply
- if the amount of tax payable as a result of the variation increases, the personal representative must be party to it and agree to it
- it must not be made in consideration for money or money’s worth
Although there is no requirement for new beneficiaries to sign the deed of variation, this is often done as good practice.
Effect
Where a deed of variation is made, the will is treated as if applied, as so varied, at the date of the deceased’s death.
Two-year window
There is a two-year window in which a deed of variation must be made. It is possible that in the period between the date of death and the making of the deed of variation, changes have occurred. For example, the asset that is subject to the variation may have been sold. In this situation, the proceeds, rather than the actual asset, would be redirected as a result of the deed of variation.
Once made cannot be undone
Once a deed of variation has been made, it cannot be undone. It is therefore advisable to take advice prior to varying a will.
Example
Bill dies in October 2019 leaving an estate of £1.5 million split equally between his wife, Barbara, and his sons Simon and Philip.
The family agree to vary the will so as to leave everything to Barbara to benefit from the inter-spouse exemption. Bill’s unused nil rate band will be available on Barbara’s death. Her will provides for everything to be left equally between her sons.
Where a deed of variation is made, the will is treated as if applied, as so varied, at the date of the deceased’s death.
Simon and Philip must be agree to be party to the deed of variation as they are adversely affected by the redirection.
The deed of variation is made in February 2020. The changes are deemed to be effective from the date of Bill’s death as if they represented his will at that time.
If you need help with the tax implications of the above please call us on 0114 272 4984 or email at info@shipleystax.com.
Chancellor extends furlough scheme to end of June
Chancellor has confirmed today that the Coronavirus Job Retention Scheme will be extended by one month to 30 June to reflect continuing social distancing measures.
The move provides some certainty and allows firms from across UK to continue to protect millions of jobs. The scheme will continue to be monitored to ensure people and businesses can get back to work as soon as it’s safe to do so to drive UK economic recovery.
Chancellor has confirmed today that the Coronavirus Job Retention Scheme will be extended by one month to 30 June to reflect continuing social distancing measures.
The scheme, which allows firms to furlough employees with the government paying cash grants of 80% of their wages up to a maximum of £2,500, was originally open for three months and backdated from the 1 March to the end of May.
However, the Chancellor said he would keep the scheme under review and extend it if necessary.
The government has taken unprecedented action to help the economy and society bridge a period of national emergency so that as many people as possible can get back to work as the situation improves.
This week the Office for Budgetary Responsibility said the CJRS is limiting the impact on employment. Brewdog and Timpsons are among the thousands of businesses up and down the country furloughing their staff.
Future decisions on the scheme will take into account further developments on the wider measures to reduce the spread of coronavirus, as well as the responsible management of the public finances.
For help and advice on furloughing please call us on 0114 2724984 or email info@shipleystax.com.
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