There are a lot of misconceptions about tax investigations - and our job is to help clear up some of those.
That's why we've chosen 7 misconceptions that we want you to know about:
1. "HMRC officers are friendly and as representatives of the government will be fair".
Yes, some officers are friendly and approachable but they are there to do their job, which is to check your tax return and establish any tax inaccuracies that could lead to a tax liability. HMRC officers have team targets that they must contribute to as well as conduct their job according to "Your Charter" which can lead to conflicting priorities. I also had taxpayers going into a meeting with HMRC thinking, 'okay we have explained everything to them' and then a £500,000 tax assessment was issued based on the information provided in the same meeting.
2. "My agent said he was handling everything and not to worry about it"
At the end of the day, it's the taxpayer's responsibility to pay their taxes and not the agents. When agents make a mistake or does not submit an appeal or communicate effectively with HMRC for whatever reason, it will mainly be the taxpayer that suffers the consequences. We took over a case where the VAT officer was unhappy about the fact that the previous agent just did not respond to her emails. Or other cases where the agent did not correspond with HMRC over a year under the mistaken view that no news was good news. Meanwhile, the taxpayer thought his tax case was being dealt with when it was not. Fully qualified accountants are not trained in tax investigations it is not part of their syllabus or modules, they may have attained some experience when their clients are subjected to tax investigations, but this is not their day job. We can work with accountants and agents when the tax cases get too hot to handle or just stuck where there is no case progression at all.
3. "I thought that since this is a VAT compliance check there would only be VAT tax consequences. I was not expecting a corporation tax bill as well".
We have even had fully qualified accountants make this assumption because when HMRC was the Inland Revenue back in 2007, this was the normal approach one tax investigation one tax consequence. HMRC's approach to tax investigations (or now known as compliance checks) have changed because the compliance checks may start out in one tax area, but can result with other tax consequences and penalties. For example if the VAT check established an increase in sales then this will also increase the turnover and therefore i.e. corporation tax liability. At the end of the day there can only be one consistent figure for sales in whatever tax accounts.
4. "I had a tax enquiry before and we came to a settlement. I was expecting things to go the same way during this enquiry".
Since the introductions of tax penalties for inaccuracies in 2009 and changes in the way HMRC work their cases, HMRC has changed their approach to tax cases and settlements. Taxpayers may have experienced tax investigations before, but the tax consequences are likely to be more wide-ranging now.
5. "I have been called to a bankruptcy hearing instigated by HMRC, there's nothing more that can be done on my case".
Yes we can help, even at bankruptcy stage. More often then not communications have gone astray with HMRC, in that HMRC have not received the requested responses or even no one has responded to HMRC's queries and as a result have issued best judgement assessments on the information and documents they have available.
6. "I thought it would be easier to just pay the tax assessment".
Yes, we have had clients that thought it would be easier to just pay the bill. However, then another few tax assessments landed on their doorstep. By accepting the tax assessment, the taxpayer are accepting their tax position and penalties by default and are probably leaving themselves open to other tax assessments and penalties. As explained in point 3, there may be other tax consequences and other years for which tax assessments will be considered.
7. "HMRC are just asking for information and documents, I do not need a representative".
At this stage, from the information and documents request, we can view what risks HMRC are assessing and also if they are even entitled to ask for the information and documents. By providing the documents and information, you maybe giving them information which is not necessary and can lead to even further queries from HMRC.
Jesminara Rahman is the Director of Tax Resolute and can be contacted on 07508034311 if you have further queries on HMRC enquiries. Alternatively fill in our contact form on our contact page.