How far back can HMRC investigations go?

In an enquiry HMRC will normally investigate, in great detail, the year of enquiry by scrutinizing your business books and records and sometimes your personal bank accounts. Where additional tax is found to be due they will retrospectively assess those earlier years in line with their findings.

If they suspect deliberate tax evasion, they can investigate as far back as 20 years. Investigations into careless tax returns can go back 6 years and investigations into innocent errors can go backup up to 4 years.

What triggers an investigation?

HMRC’s compliance checks are usually started when figures submitted on a tax return appear to be wrong in some way. This might be a fluctuation in patterns like your GPR, low levels of income/drawings, omitted rental income, a large or unusual claim for VAT or information held by HMRC that gives rise to concerns.

However before any enquiry notice is issued they will have fully risk assessed your case and looked into every aspect of the business and your private life from information held in the public domain.

How do I know if HMRC is investigating me?

Every tax investigation starts with a brown envelope dropping on the mat. HMRC will never telephone you to advise you that you are under investigation nor will they email you.

They will only ever speak to you on the telephone or email you once an investigation has commenced formally in writing and then only when you have agreed to deal with them by email by signing their email protocols forms.

At that stage you need to speak to a experienced tax investigation specialist even if it is only for an initial phone call.

Lindsay would not advise you calling HMRC to discuss your case when you receive the letter, without taking advice from her first as HMRC are very experienced in asking questions on the phone, on the basis of ‘if they don’t ask they don’t get’ and sometimes you fall into the trap of telling them things they are not actually entitled to know.

A phone call is never wasted to a specialist.

Beware HMRC invasive software!

HMRC uses very sophisticated software called Connect. This analyses large volumes of information, detecting patterns, connections and inconsistencies to flag up possible tax evasion.

Examples of things they review at the push of a button or Equifax showing what mortgages and loans and credit cards you may have, the electoral roll to show who lives at any properties you own which of course are exposed from their search of the land registry site.

They also are expert at reviewing your social media and regularly mention things you may have posted on Facebook particularly during a tax investigation.

Will HM Revenue and Customs prosecute me ?

HMRC do prosecute people for failing to declare their income, but there are relatively few prosecutions every year. It it’s more common for them to prosecute people for falsely claiming VAT rebates and for PAYE matters or for lying or hiding assets during any enquiry. We can also expect to see some more prosecutions for fraud arising during the Covid period like furlough and loan fraud. However you are unlikely to be prosecuted if you voluntarily disclose your failure to HM Revenue and Customs before they have any suspicion of wrongdoing.

Lindsay is expert at this and regularly requests HMRC to accept more serious cases onto the Code of Practice 9 process whereby you can be granted immunity from prosecution in return for a full disclosure of all irregularities. Contact her for details if you believe you are at risk.

Do I have to go to a meeting with HMRC ?

I always advise my clients that there is nothing in law whereby HMRC can force you to attend a meeting with them. This is the truth, however most people believe that they have to go to a meeting when they receive the letter from HMRC asking them to attend HMRC’s office for a meeting or even on Zoom these days. You are quite at liberty to continue the enquiry in writing by correspondence yourself or via your accountant or specialist advisor.

Contact Lindsay if you have had a letter asking you to meet HMRC as it is always preferable for the advisor to go if it is absolutely necessary rather than you.

HMRC may ask to visit your home, business or an advisers office. In certain circumstances HMRC do have the right to visit the premises where the business records are kept purely to examine those records. It is still the case that you do not have to interact with them at that meeting verbally and you can restrict what they are able to view.

It is always advisable that you try to get HMRC to come to your accountants premises where the books and records can be examined in a controlled environment with your accountant or adviser present. Allowing them to visit your premises can be fraught with danger and also cause embarrassment to staff or customers alike.

Contact Lindsay if you need advice in this respect as forewarned is forearmed.

Can I pay in instalments?

If you are unable to pay your taxes on time, you have the option of negotiating a Time to Pay with HMRC.

Post Covid, HMRC has expanded its access to its time to pay scheme. You would be expected to stick to the arrangement that you make and may only be ever offered one time to pay arrangement. If you default on it you could be asked to pay the whole debt upfront.

Constant contact with HMRC is recommended if you have any difficulty maintaining the time to pay arrangement. You may be asked to complete an asset statement or means test form to show what disposable income you have to make an affordable time to pay arrangement.

How can I avoid a penalty in certain circumstances?

The concept of ‘reasonable excuse’ in tax terms, is valid reason that genuinely prevented you meeting a tax or filing obligation and HMRC only accepts serious situations like for example:

• our partner or a close relative died shortly before the tax
• return or payment deadline, or you had an unexpected illness or hospitalization that prevented you from dealing with your tax affairs

But once the circumstances we are calling the ‘reasonable excuse’ have ceased you are expected to have immediately dealt with the tax delay.