HMRC can open a variety of “audits”, or enquiries as they are known, into your tax affairs. These can range from a simple Compliance Check because their records don’t match with what you have submitted, all the way up to a COP9 Fraud investigation if they believe you have acted dishonestly. These investigations are very serious, though, as is often the case, the HMRC will give you the fair opportunity of making any disclosures right and avoid prosecution.
If you receive an enquiry, the first thing to do is engage a professional.
Once you have a professional dealing with the situation, you can stop worrying. Fear of the unknown is the worst thing anyone can experience. Your advisor should be able to explain to you what type of enquiry you are subject to, what it means, what is expected of you, timescales, taxes and penalties.
Your advisor should have experience in this area, they should be confident in dealing with HMRC and understand tax legislation.
You should co-operate with HMRC as much as you possibly can. Co-operation is a key factor in deciding what level of penalty you may have to pay, if any. If you are unable to meet a deadline that HMRC have asked you to adhere to, write to them and explain why you can’t and when you will. Put everything in writing and keep a timeline of past, present and expected future correspondence. This will put you in control, which will also help keep those stress levels down.
Make things as easy as possible for the HMRC inspector; don’t try to be clever with your responses. Set out what has been requested and provide respectful conclusions. The easier you make it for the HMRC officer to find the information they need to close the enquiry, the better the chance you have of a positive outcome and reduced penalties.
Sometimes it may be the case that you need to negotiate with HMRC to reach a settlement, your advisor should be able to give you
sensible guidance in this area.
We were approached by the manager of offices we were renting as her father had received a letter from HMRC. It appeared that he had worked as a door to door salesman and had not realised that he needed to pay tax on his income. HMRC wanted tax returns for a period of 5 years. His records were not complete therefore he could not provide us with accurate figures for income or expenses. Based on the records we did have, we were able to estimate figures for any gaps. We talked to him about his day to day trade and what was required, which enabled us to work out the types of expenses he might have had, reducing the liability. We put together estimated accounts with an explanation to HMRC as to why we thought they were “reasonable”. HMRC agreed with our figures and the client happily paid the tax. As we had responded quickly and had been extremely co-operative with the inspector, there was no penalty to pay.
Insight: Co-operation and disclosure are the secrets to resolving a HMRC tax enquiry. Your accountant should be your guide through the process.