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Top tips for taxpayers facing investigation

As we approach the Christmas holidays, it is easy (despite the difficulties arising from the pandemic) to look forward to time off work, family gatherings and the season of goodwill to all.

However, don’t forget that there are still a few working days until Christmas and many people, including HM Revenue & Customs (HMRC), will be hard at work right up to Christmas Eve. It is therefore quite possible that taxpayers could still receive enquiry notices before the festive season gets into swing – an event that gives a whole different meaning to the phrase: “let the (Christmas) games begin!”

Whilst many may consider it inappropriate to refer to anything as stressful as a tax enquiry or investigation as a game, it does bear many of the characteristics of a game, featuring players, referees, rules and practices, skill, fortune or misfortune and, ultimately, winners and losers.

So, what are the top tips for dealing with a tax investigation if you are unlucky enough to find yourself on HMRC’s ‘naughty list’ this Christmas?

Be prepared

It is all too easy to get caught up in daily life and neglect administration matters, but in dealing with your tax, it is essential to ensure that you have complete and accurate books and records, which are all easily accessible and which can be used to support the entries in your accounts/tax returns. This should minimise the stress and the time involved in dealing with an HMRC investigation.

Know the rules

The rules of this game are complicated and not understanding them can put you at a serious disadvantage. Although co-operation with HMRC is clearly to be encouraged, if you are asked for information or documents it is worth stopping to consider the following before doing anything at all:

  • What exactly is HMRC looking for?
  • Why?
  • Do I have it?
  • Must I provide it?
  • What are the consequences of doing so and what are the consequences if I don’t?

In particular, understanding why HMRC want something, can sometimes make it clear that the document being requested is not the most helpful one and that provision of other information which addresses their concerns more fully will expedite the conclusion of the investigation.

Don’t lie to HMRC

This might seem obvious, but it is surprising how many people fall into the trap, particularly when this comment is expanded to take account of selective amnesia and destruction of evidence. In the former case it is dangerous to assume that HMRC is ignorant of anything and in the latter, the loss of data is usually unhelpful, since HMRC will assume the worst-case scenario without evidence to the contrary.

Keep calm

Ranting at the unfairness of it all helps no-one. Not only will it raise your already heightened stress levels, potentially clouding your judgement, if your rant is directed at HMRC it may also cause any goodwill to evaporate.

In the vast majority of cases HMRC conducts investigations properly and with complete professionalism in accordance with both the legislation and Codes of Practice. However, in recent years the legislation has handed more and more power to HMRC and there are odd occasions when an officer’s interpretation of the rules relating to powers means that they overstep the mark. There are formal mechanisms for redress, and these should be used, rather than giving way to an emotional response. However, it is important not to take such action unless there is a genuine reason for complaint, to avoid creating unnecessary antagonism.

Loose talk costs…

Even if it is possible to control the urge to rant, it is tempting to discuss what you are going through with family, friends, and acquaintances, with many taxpayers receiving copious amounts of advice in the nineteenth hole at the golf club, or at this time of year at Christmas drinks or dinner parties. Avoid the temptation! It is important to recognise that everyone will have an opinion, the advice will vary depending on who you speak to, and will almost certainly be wrong!

No two tax investigations are the same, and therefore even someone who has been through one themselves cannot be sure that what they did, or what their advisers suggested, will be right for you. Even those that have are likely to have had different items under scrutiny and their enquiries may have taken place before the many changes in legislation which have fundamentally changed the rules of the game. Out of date advice could land you in further hot water.

Get the right team

All ‘games’ involve an element of chance. You may have been unfortunate in having been selected for an enquiry, or in encountering a particularly disagreeable or difficult HMRC officer. You cannot control these things, or a personality clash between you and the officer in question. It is therefore vital to concentrate on the areas where you can make a difference. As a taxpayer who (hopefully) has not and is not going to encounter a tax investigation on a regular basis, you don’t know the rules or the strengths and weaknesses of HMRC. It is therefore important to get expert advice from someone who does understand those issues and can bring the appropriate skill to bear and bring the investigation to a satisfactory and speedy conclusion.

Take care in future

Although some investigations are random, the majority are opened as a result of a complex risk assessment carried out by HMRC. Once you have successfully concluded an investigation, it is important not to re-offend, however inadvertently. Take the opportunity during the course of the enquiry to tighten up any of your procedures in relation to which HMRC have expressed concerns. With a combination of skilful amendments to your compliance procedures and a bit of luck you will never have to play this game again!

To discuss any of the above and how it might apply to your business, please get in touch with your usual Blick Rothenberg contact or Fiona Fernie or Gary Gardner in our Tax Risk & Dispute Resolution team using the details on this page.

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