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2nd September 2019
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2nd September 2019
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How to survive a Tax Investigation

Tax Investigation

Running a business always stretches us outside our comfort zone. Every day is different.  We all do more than 1 job in our business. Sometime we delegate few tasks however many little mundane duties we like to do it ourselves.  One of them is opening the post.

So we are looking at the pile of letters in front of us and we are searching for the orders, payments and many other items we are waiting for and among these, there is a brown envelope from HMRC.  The heart start racing with many emotions curiosity, anxiety, distress and many more ……

What would you do if it is a tax enquiry for vat, payroll, self-assessment, corporation tax or any other area of tax matter?

I share my thoughts here on how can we manage tax enquiry.  These are my top tips for surviving an investigation.

Stay calm

Firstly, please do not ignore this letter hoping it will go away because it will not. Stay calm and check few facts.

Do you have an accountant?

Is your accountant aware about this?

Is your accountant “Chartered Qualified and experienced” in managing this enquiry?

If the answer is yes then please consult your accountant. Tax is complicated. You need someone on your side who has experience resolving investigations and knows how the taxman operates. It is likely to be cheaper in the long run, too.

Don’t destroy the evidence

Getting rid of documents may lead HMRC to assume that you’ve something to hide. If you didn’t keep records, be prepared to obtain replacements (such as bank statements) and to work with your adviser to make reasonable estimates and assumptions to fill any gaps.

Seek clarification

If you don’t understand why the taxman is asking certain questions, keep asking. HMRC’s own guidance urges tax inspectors to work collaboratively so that all sides “work together on a cooperative, non-adversarial basis in order to resolve a dispute”.

Don’t over-promise and under-deliver

If you cannot meet a deadline, speak to the Revenue, explain the situation and agree a revised timescale. Missing deadlines can increase penalties and lead to formal demands for information. Similarly, if you need to pay what you owe over a period of time, let the taxman know straight away and be realistic about when you can afford to pay: missing pre-agreed payments has serious consequences.

Never assume

Don’t assume, for example, that the taxman has made a mistake or is unaware of your offshore bank account. The Revenue holds vast amounts of data and can obtain more from third parties in Britain and worldwide. It focuses its limited resources so if HMRC is investigating you, it is for a reason. If an error is found in your return, don’t assume that that is all the Revenue is interested in; it will want to check whether the error occurred in other years.

Be honest

If there is something wrong with your tax return, tell HMRC upfront. Making a full disclosure of all relevant facts and explaining why things went wrong is essential. Failure to do so will lead to increased penalties (and possibly a criminal investigation) when the full story emerges.

Be one step ahead

Read through each draft response to the taxman carefully. If you think “HMRC are bound to ask me about x next”, answer that question and provide supporting documents in your response. Being helpful and giving access to records can reduce penalties, as will making a full disclosure and meeting deadlines.

Prepare thoroughly for meetings

Ask for an agenda and prepare carefully, including collating relevant documents. During the meeting be patient, answer the questions and say if you don’t understand. Check any meeting notes that the Revenue provides as there can be misunderstandings. Let them know what amendments are needed as HMRC will rely on those notes if the matter goes to court.

Get mediation

If progress slows to a crawl, “alternative dispute resolution” (ADR) may help. ADR is a form of mediation which can resolve cases where a solution seems elusive or positions have become entrenched, even when some information is unavailable or a formal appeal has been made against assessments. Mediation does not mean capitulation: but compromises may be necessary on both sides to resolve the case and avoid an expensive tribunal hearing.

Contact a good accountant

A good and experience accountant deals with HM Revenue & Customs and Excise every day.  This is what a good accountant will provide.

  • Take the lead role in dealing with HM Revenue & Customs and allow you to focus on running your business.
  • Will understand more thoroughly the demand and requirement to satisfy the enquiry
  • They will reply to all further letters and correspondence on your behalf
  • Will be able to abstract the necessary information from your books and records to satisfy Taxman.
  • If necessary negotiate with the Taxman the tax amount and tax payment plan.
  • Most importantly, a good accountant will know if your accounts raise any suspicion or doubt about any item. A good accountant will keep the taxman as far away as possible by preparing good quality accounts.
  • It is generally true that if you want to know why the taxman is asking many questions, then you need to look in to you your accounts and tax return.

We provide tax investigation support throughout the United Kingdom in the areas of VAT, Paye, Income Tax, Corporation Tax, Inheritance Tax etc.

To find out more about surviving a tax investigation contact us on 0161 339 4989 or email info@sterlingfinance.net.