What happens during a HMRC tax enquiry?
There are lots of ways in which we can answer this question but one thing is certain a tax investigation is never something to be taken lightly. No matter what you do as an individual, whether you are self-employed, a sole trader, in a partnership or PAYE a HMRC tax enquiry should not be ignored.
If your business is on the receiving end of a HMRC tax enquiry the advice is the same, staying on the right side of HMRC is always best advice.
A HMRC tax enquiry can be disruptive and difficult to navigate, even when you’ve done everything exactly as you should.
The Government can schedule an investigation at any time, so being prepared for one is the best way to mitigate a drawn-out process.
What happens during a standard HMRC tax enquiry
During a standard investigation, HMRC will send a notice through your letter box. Inside this notice, you’ll find the information you need to know, and what areas they’ll be looking into, such as:
• self-assessment tax returns
• company tax returns
• PAYE records
• accounts and tax calculations
• VAT returns.
Tax inspectors from HMRC will review your records and accounts and may speak to you face-to-face about your income and/or expenditure over the phone. HMRC may also examine bookkeeping records and other sources of information relevant to the investigation.
When the investigation is complete, HMRC will inform you of the outcome, explaining any discrepancies and informing you of any penalties.
There is usually a percentage added to the tax you owe as a penalty.
But what happens if you haven’t been compliant? How does HMRC investigate then?
HMRC COP8 tax enquiry
During a Code of Practice 8 (COP8) investigation, HMRC examines the taxpayer’s affairs in detail, seeking to establish whether there has been deliberate non-compliance with tax regulations.
This investigation typically involves gathering information, conducting interviews, and reviewing financial records to determine the accuracy of the taxpayer’s tax returns and whether any fraudulent activity has taken place.
COP8 investigations are serious and can have significant legal and financial implications.
If you’re subject to a COP8 investigation seeking professional and accounting advice to navigate the process and ensure compliance with tax laws from an expert like us, is always advised.
HMRC COP9 tax enquiry
Code of Practice 9 (COP9) applies to cases where HMRC suspects, or the individual voluntarily discloses, that insufficient tax has been paid because of their deliberate action or inaction.
HMRC refers to such behaviour as “tax fraud”, but it is more commonly known as “tax evasion”.
Taxpayers can choose to use the Contractual Disclosure Facility (CDF) or be issued COP9 by HMRC.
Individual circumstances and the complexity of the case can affect the specifics of a COP9 investigation. A qualified tax professional should be consulted when facing such an investigation.
Worldwide Disclosure Facility (WFD)
The WDF is an HMRC digital service allowing taxpayers to disclose offshore non-compliance in relation to their overseas interests. Anyone can make a disclosure through the WDF, including those who are non-UK residents.
To identify potential offshore non-compliance, HMRC receives financial information from over 100 countries under the Common Reporting Standard (CRS).
For example, a taxpayer has filed tax returns with false information about offshore irregularities. Or a taxpayer has failed to notify that tax is payable, and hasn’t filed a tax return declaring offshore income, profits and or gains.
Using the WDF gives you more control over the process, and you’re likely to settle faster than if HMRC opened an investigation.
The reason for this is that you submit how much revenue is lost, what behaviour led to offshore non-compliance, and what the tax-geared penalty should be.
Being investigated by HMRC? Talk to an expert
As your accountant, and tax advisor, we’re here to give you support, advice and guidance on how to better navigate a HMRC tax investigation.
A tax investigation can be a stressful time, of course, but with an expert by your side, you’ll feel a lot more supported throughout the process.
If you would like help with a tax investigation, or would like to speak to a member of our tax regarding anything contained in this article, or indeed any area of taxation, please contact us on 020 3697 7147 or via our website.