HMRC have been cracking down on unpaid
taxes over the last 4-5 years, and these crack downs are gaining momentum.
Before HMRC investigators targeted those individuals in high income, cash and
business who are more likely to use tax avoidance schemes. Now the climate has
changedno one is immune, tax officials are targeting everyone from landlords,
professionals, individuals who sell on eBay, to those who work from home like
sale representatives.
HMRC have set up teams to investigate areas they
believe to be high risk tax fraud, these could be geographical or specific
sectors. In recent years it has been property income.
HMRC investigators
will not explain what triggered the taxinvestigation
. It could be just a random enquiry or some obvious error or omission HMRC
have detected. Sometimes it could be something simple as your tax returns being
constantly late or your expense claim was high against your income. Whatever the
case is, if you receive a letter of investigation from the HMRC don’t panic.
Some investigations can simply finish with one letter others can go on if HMRC
request more information.
If you are under a Tax investigation HMRC can go
back 20 years but it is usually 4-6 years. When you receive an HMRC
Investigation letter it will detail what information is required depending
on what they are investigating. Normally they will require information based on
the tax return you have submitted.
HMRC determines what years they can
assess and the level of penalties. There are 3 main categories they use, based
upon the behaviour of the taxpayer:
1 Innocent Omission : If HMRC
discover there was tax to be assessed, and the taxpayer was wrong without being
carless the normal time limit is 4 years from end of year, i.e. they will open
up 4 tax years.
2 Careless or Negligent : If HMRC find the taxpayer to
be Carless/ Negligent by failing to do what a reasonable prudent man would do.
HMRC will look into 6 tax years from end of year.
3 Deliberate : If HMRC
establish that the omission was deliberate i.e they had the knowledge and had
intend to conceal HMRC will investigate 20 tax years.
The calculation of
the penalties and Interest depends on whether failure to disclosure was
innocent, carless or deliberate, the penalty can be even higher if there was
evidence of an attempt to conceal. The penalties can be anything from 0% - 100%.
In certain cases the penalty can be as much as 200%, i.e.where there is foreign
income involved.
When HMRC makes an assessment the onus is on the
taxpayer to displace the assessment. If the assessment is based on the taxpayer
behaviour being carless or deliberate the onus is on HMRC to prove this was the
case.
Taking into consideration the above a tax
investigation can turn into a lengthy and costly exercise, a pain well worth
avoiding. Therefore is it imperative to consult with an accountant or a tax
specialist who has experience of these cases. Appeals can be made against: An
assessment, A penalty notice, A decision or A notice under Section 36 FA 2008.
This can be a long and complicated process, and if the appeal goes against you
the HMRC
investigationor penalties remains to be addressed.
An accountant or
tax specialist with the correct experience will Collect and ensure the
correct and precise information is sent to HMRC Investigators. Attend to
additional information requests. Ensure the enquiry is not extended
unnecessarily by HMRC. Negotiate a final settlement of interest and
penalties. Negotiate the time period of payment as it is due
immediately.
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