Any HMRC tax investigation is a worry, but given that compliance contact from HMRC can come in many forms just how concerned should you be?
We have discussed on many occasions, potential triggers, that give rise to an HMRC tax investigation. Generally the key word to focus on is risk. HMRC tax investigation teams have begun to work in wholly more effective fashion than was one the case.
Third Party Information
There has always been a huge volume of information available to HMRC. Whether that be via internal systems of through third party information gateways such as the land registry, local authorities and financial institutions.
Anybody who receives a letter informing them that a tax investigation or compliance check has begun should therefore be naturally concerned. Remember a compliance check is a tax investigation by another name. The language may be more relaxed, but be assured the intention and approach remains exactly the same as it always has been.
A tax investigation letter therefore indicates HMRC’s view that tax is at risk. For whatever reason they feel the individual or business concerned has underpaid tax.
Risk can come in many forms. It could be undeclared income, perhaps overstated expenses or maybe more simply, technical accounting errors. Risk will often be based upon a pattern, a period of comparison which attract HMRC’s attention.
Tax Investigation risk
The first intervention will always be HMRC’s computer score. This is a fairly sophisticated process, where intuitive software compares trading patterns, accounting ratios and potential excessive claims. Essentially a risk score is allocated to every case.
However, as with all computer based decisions the result is far from foolproof. For that reason a human intervention by an Inspector on a tax investigation team will always be required before a compliance check is launched.
The vast majority of tax investigation cases emanate from Local Compliance offices. They are generally conducted by experienced investigators or compliance officers dependent upon the nature and complexities of the issues at hand. Regardless any contact should be treated with the utmost seriousness. Early intervention by a tax investigation specialist will save you time and money.
The level of seriousness of course can increase according to the type of investigative contact that HMRC make. For example, letters emanating from HMRC serious fraud teams are the most certainly in the red zone, given that they are conducted under Code of Practice 9. The most serious procedure available to HMRC using their civil powers.
If you are worried about an HMRC tax investigation please do not hesitate. Pick up the telephone and speak to a specialist.
You can contact Admiral for free tax investigation advice on 0330 999 5000.