23rd September 2019
An investigation by HM Revenue & Customs (HMRC) into your tax affairs can be a stressful and time-consuming business. Even when you are confident that you have done nothing wrong, it can still take a long time to gather together all the information HMRC have requested and present your case.
HMRC has stepped up its enquiries and investigations programme recently. For a standard tax returns the process generally falls into one of two categories – aspect or full. An aspect enquiry is into a single element of the return – for example a capital gains or some taxable income that HMRC believes has been omitted, such as bank interest or dividend income. A full enquiry is a more comprehensive review of multiple factors about someone’s tax affairs.
Under normal circumstances HMRC will have 12 months from the date you submit your tax return to open an enquiry and ask questions about its contents. Outside of this ordinary enquiry window, HMRC can still open an investigation if they have ‘discovered’ a discrepancy from other sources. This means they have found more information that wasn’t available to them at the time you submitted your return and that indicates that there might be some tax underpaid. In these more complicated circumstances it is important to take professional advice to ensure that HMRC are acting within their powers.
One particular area that HMRC has placed greater emphasis on in recent years is ensuring that offshore income and gains are reported correctly. To that end, the UK has entered into a number of international agreements through which national tax authorities agree to share information about individual taxpayers’ affairs, enabling HMRC to identify those who have not been fully compliant with their UK tax liabilities on their offshore assets. Higher penalties have been introduced in relation to undisclosed offshore income and gains.
Increased use of technology and combining sources of information make it easier for HMRC to compare information reported in tax returns with those already held in official records. For example, by referring to the Land Registry HMRC can identify property ownership and where the disclosure of property sales might need to be checked.
Records, however, are not infallible. The Land Registry for example records legal title whereas it is the beneficial owner who is liable to pay the tax and report the disposal. Such a discrepancy may not always be obvious from the records and could cause HMRC to open an enquiry into a relatively simple transaction where there has in fact been no error.
Even when there has been no mistake, professional fees could still be incurred dealing with the enquiry. haysmacintyre’s Fee Protection Service (FPS) can alleviate some of the financial stress relating to an enquiry. If we have prepared your tax return, our FPS may be able to assist with the cost of the professional fees relating to an enquiry. If you would like more information about FPS and whether you are covered, please speak to Mark Pattenden or your usual haysmacintyre contact.
This article was featured in our Summer 2019 Private Client Briefing. To read more, click here.