Few letters will strike fear into the heart of abusiness owner faster than one from HMRC stating their intention to begin an investigation into the firm.
While the problem of tax evasion or aggressive tax avoidance is hardly a new thing, it has perhaps never been as politicised as it is now, and there is a concerted effort on the part of HMRC to crack down – and to be seen to crack down – on those who play fast and loose with taxes.
One law firm claimed recently that the number of dawn raids has increased by 34 percent in the past five years and it is certainly the case that HMRC is increasing its tally of staff members who carry out such investigations. Legislation introduced under the Criminal Finances Act 2017 makes failure to prevent tax evasion a criminal offence, so HMRC is investigating how businesses, or employees, might be supporting non-compliance by business partners, contractors, suppliers or customers. No company wants to go through a tax investigation and, of course, the best defence against this possibility is to make sure your company structure, accounts and reporting systems are set up properly and are functioning well. This is something you should get professional help with from the very outset.
For added peace of mind, we offer our clients fee protection insurance. Whilst this doesn’t protect against any taxes you may owe to HMRC, it does give protection against our fees while we represent a client throughout the investigation. Bear in mind that HMRC is neither judge nor jury. You are free to raise legitimate arguments, but you would be wise to rely upon a professional, who has sound knowledge of your business and of the appropriate legislation to support you in doing this.
If you are facing an investigation, there are a number of things you can do to help make the process as smooth as it can be.
Fear might be your immediate reaction, but let logic take over instead. Tell your accountant what has happened, give him or her the full picture, and seek their advice
Ask for clarification
If you don’t understand the issues raised by HMRC, or why they have singled you out, ask. It is part of HMRC’s job to work with you not against you and you cannot offer what they seek if you don’t fully understand the problem.
Do not hit the shredder
It is important not to destroy documents. This just would just raise a big red flag to HMRC that you have something to hide. If your records are incomplete, be prepared to seek replacements or work with your advisor to offer reasonable estimates to fill in any gaps.
If you have made an error on your tax return, or if you feel you are unlikely to be able to meet a deadline for disclosure or payment, tell HMRC. Now is definitely not the time to bury your head in the sand. If payment is an issue, you should be able to agree a payment plan you can afford to meet.
If you are due to meet HMRC ask for an agenda ahead of time. Arrive armed with the documents you are likely to need to respond to the issues. During any meetings, answer any questions as openly as you can. If you do not understand the question, make this clear and make sure you check any minutes of these meetings for any inaccuracies. If you spot any you should ask for them to be amended – if the matter goes to court, HMRC will rely upon these notes as part of proceedings.