As the tax system gets more complex and HMRC continues to clamp down on tax records Gary Brothers, national director of tax investigations at Mazars and AAT (Association of Accounting Technicians) representative shares with us some thoughts on what to do if you enter a dispute with the taxman and how best to resolve an investigation.
Tax is taxing. You may feel especially so if you’re a small business. HMRC have been seen to be cuddling up with the big players such as Goldman Sachs and Vodafone and all the while smaller businesses in recent years have come under the spotlight subjected to spot checks on paperwork with hefty fines attached. If you find yourself in a dispute with the taxman, these tips should help you navigate the process.
Get to grips with the basics and know your rights
Firstly understand if there is a proper enquiry - have you received a formal notice asking to conduct an investigation into income or corporation tax for your business or your client’s business?
The specific sections you must be looking for within your notice are references to:
- Section 9A TMA 1970 for income tax
- Paragraph 24, schedule 18, FA 98 for corporation tax
And these will be accompanied by a list of requests, further information and documents..
If your formal notice doesn’t mention these two sections then you need to be clear that the enquiry is voluntary. It’s very importance to understand the difference. There are lots of considerations with regards to voluntary requirements.
Firstly you have no safe guards such as code of practice to ensure HMRC play fair and no rights to a closure notice once the investigation has occurred. Secondly if you or a client has investigation fee protection insurance, the insurer is unlikely to cover any work carried out. Fundamentally though you need to ask yourself why hand over tax records when there is no legal requirement to do so.
HMRC can only ask for information and documents that are reasonably required to check tax positions. HMRC are not entitled to a wide shopping list of information in order to fish around in your business. Also something that the tax man won’t tell you is there is no obligation for you to meet HMRC. HMRC are very skilful at getting the answers they need and this naturally can have disadvantages for any business – big or small.
Be the inspector
While many UK businesses think the taxman’s heavy handed approach is unfair, it is important to realise that it is very seldom that HMRC investigate a business without justifiable reasons. You need to ask yourself why HMRC have chosen to investigate. Mistakes can happen and there can be errors in financial affairs or mis-recorded expenses however it’s important to be aware of these mistakes and if possible to bring them to the attention of HMRC before they examine and find these mistakes themselves.
Never lie to the taxman or think that you can outwit the taxman. They are expertly trained forensic financial investigators and have years of knowledge, knowhow and experience within their fields. Once the enquiry has begun, if there are any issues or wrongdoings to be found, the taxman will find them. Honesty is absolutely the best approach throughout any enquiry and investigation. False or inaccurate information comes with harsh consequences including in some cases prosecution.
Get independent professional advice from a specialist. A good port of call is the Chartered Institute of Taxation
. While it is another cost to consider, it is most certainly worth it. A specialist accountant or advisor can guide you every step of the way through a tax investigation to help the tax investigation go as smoothly as possible. Costs can be significant if enquiries are not dealt with firmly - as well as tax, interest and penalties if HMRC find something wrong, a combination of professional fees and also commercial distraction can be costly for any trader or business owner.
Close it out
Once the investigation is well underway, it is a good idea to take responsibility in order to close the dispute or investigation. HMRC won’t be in any rush to do so. It is vital to agree on issues, stop the debate, make an offer if adjustments are due and if necessary ask for formal assessments or a formal ‘decision letter’ to come to a formal conclusion. Once the enquiry is closed formally, you are able to put this behind you allowing you and your business to move on!
Learn from your mistakes
Don’t make the same mistakes twice. Get to grips with your finances. Take an interest in this area of your business and use a respected and trustworthy accountant that is part of a professional body and is up to date with their CPD (Continuing professional development). Once investigated, you don’t under any circumstances want HMRC banging on your door again.