You may well have read that all new HMRC compliance checks had been placed on hold in recent months; due to the Covid-19 pandemic. There has now been an update on the department’s approach. All compliance check work has now recommenced as of the week commencing 3rd August 2020. The word coming out is that the department will be looking to increase the number of HMRC compliance checks during the remainder of this year and next. Aside from there being an increase in the numbers of HMRC compliance checks; there will no doubt be a much harsher line taken with those found to be evading taxes. Please take some time to read our updated page – Check of the self-assessment tax return.
This will come as no surprise to anybody; given the economic crisis that the country now faces. As the situation continues to calm, we can be assured of a more draconian line being taken moving forward. Expect to see some harsher legislation being drawn up by government in forthcoming budgets. This will have an impact across every type of tax investigation launched including HMRC compliance checks.
The vast majority of HMRC compliance checks begin because there are concerns about the integrity of a tax return and/or accounts submitted by an individual, partnership or business. If you receive an HMRC compliance checksletter informing you that HMRC wishes to check your tax position then it is safe to assume that HMRC feels that you or your business has underpaid tax, either due to negligence or fraud. Essentially this is a tax investigation in another guise.
Your case will likely be managed by HMRC Local Compliance. HMRC Local Compliance checks teams deal with the vast majority of investigations via a check of self-assessment tax return. They will write to you informing you that a check of self-assessment tax return has commenced. The check of self-assessment will usually focus on one year. However, because of the sophisticated way that HMRC select cases suitable for tax investigation; you can be assured that they feel that the risk of a tax loss is high. Moreover, it will be their intention to establish tax irregularities not only for the year of enquiry but for earlier years too.
HMRC teams will consider several factors including risk, means, industry knowledge, business economics and perhaps the results received by similar businesses in your geographical area. The inspector is also likely to hold a file of information obtained from third parties such as banks, local authorities and in some circumstances informants. An interrogation of the internet will also be conducted in virtually every case. The department now use a sophisticated piece of software called “Connect”. The purpose of Connect is to join up and interrogate all of the information sources available to HMRC; before highlighting a case that may be suitable for an HMRC compliance check or more serious tax fraud investigation such as Code of Practice 9 (COP 9).
HMRC compliance checks are expensive and the department has a limited pool of investigative resources available to them, so if an HMRC compliance check is opened you can assume 3 things:
That HMRC have performed a thorough analysis of risk; including the searches referenced above
That HMRC will strongly suspect that tax has been underpaid
That HMRC are seeking to broaden the scope of the investigation and extend the final settlement across multiple years
This is a tax yield based exercise; far more than it is a helpful check of your tax position.
Now that you have read some background; we answer the most commonly asked questions relating to HMRC compliance checks below:
WHAT ARE HMRC COMPLIANCE CHECKS?
The phrase tax investigation immediately carries a negative coronation. It immediately puts one on notice that HMRC feels that there is something wrong with your taxes and that they are going to investigate as a consequence. HMRC decided to change its approach to compliance work with the introduction of self-assessment.
The language that HMRC use also changed; which saw a change in the wording of their tax investigation letters. The phrase HMRC compliance checks came into use. All of a sudden; the language seems less threatening; less invasive. The approach and intention, however, remain the same.
HMRC compliance checks cover a range of investigative approaches; across all tax disciplines. The most common form of HMRC compliance check is a check of self-assessment tax return. A list would include:
a check any taxes you pay
a check of your accounts and tax calculations
a check of self-assessment tax return either in whole or in part
a check of your Company Tax Return
a check of PAYE – either records and returns
WHY HAVE I RECEIVED AN HMRC COMPLIANCE CHECKS LETTER?
This is generally because HMRC feels that something is wrong with your taxes. Case selection is risk-based using sophisticated software known as Connect. This software connects all of the information available to HMRC via their own systems; together with intelligence obtained from third party sources. Appropriately 5% of HMRC compliance checks are started randomly.
The vast majority of HMRC compliance checks are conducted via a check of self-assessment tax return
DO I HAVE TO RESPOND DURING THE HMRC COMPLIANCE CHECKS PROCESS?
As a general rule, you are compelled to comply with HMRC during the compliance check process. However, HMRC are only entitled to see information or documents reasonably required to check your tax position. You should seek specialist advice before supply anything to HMRC.
WHAT WILL HAPPEN IF I IGNORE THE HMRC COMPLIANCE CHECKS LETTERS?
In the first instance, HMRC will send you a reminder letter reiterating the position; with a more formal demand for the information and documents listed in their opening letter. This letter is referred to as a Schedule 36 notice. This notice will give you 30 days to reply. If you fail to respond within that time frame you will be charged an initial penalty of £300 for failing to comply the formal notice. Further penalties of £60 per day will follow should your lack of compliance continue. You must never simply ignore any compliance letter from HMRC. This will always see matters escalate and become worse.
WHAT IF I DO NOT AGREE WITH THE INFORMATION BEING REQUESTED IN THE HMRC COMPLIANCE CHECKS NOTICE?
If you feel that the information being requested by HMRC is unreasonable or irrelevant then please seek specialist advice immediately. HMRC are not always right and we see many instances where information or documents being requested are outside of the legislation. It is possible to appeal against the HMRC notice; but you must never do this without speaking to a tax investigation specialist first.
HOW LONG DOES THE HMRC COMPLIANCE CHECKS PROCESS TAKE?
This rather depends on the nature and scale of the intervention. HMRC compliance checks can range from more straight forward aspect enquiries; such a PAYE or business expenses to complex business investigations covering the whole of your tax return. Your chosen tax investigation specialist will be able to ensure that the process runs smoothly and in a timely fashion. Effective, communication from all is absolutely essential.
Remember; this is not a one-way street. HMRC have obligations to meet too. If your HMRC compliance check is running for 6 months or more then clearly something is wrong somewhere. Either HMRC is not advancing the enquiry properly or your chosen adviser is not doing their job. Our average settlement time across all types of HMRC compliance checks is 3 months.
WHAT HAPPENS AT THE END OF THE HMRC COMPLIANCE CHECKS PROCESS?
There are two possible outcomes post check. Either HMRC will have established:
That your self-assessment tax return or tax position is correct
That your self-assessment tax return or tax position requires correction
If your self-assessment tax return or tax position is found to be correct then HMRC will simply close your compliance check with no adjustment. If your self-assessment return or tax position requires an adjustment because tax has been lost; HMRC will seek a settlement from you with possible penalties. Depending on the nature and scale of the irregularities identified HMRC will likely seek to include earlier years in something referred to internally as a contract settlement. HMRC tax settlements are complex; so please do call us for more detailed information.
WILL I BE CHARGED A PENALTY?
If HMRC establishes that something is wrong with your self-assessment tax return or tax position and that this has been brought about by deliberate behaviour; then you will be charged a tax geared penalty. However, there are circumstances where a penalty will not apply or where a penalty suspension can be requested. For more information please read our detailed guides on tax investigation penalties:
HMRC will only prosecute in the most serious cases of tax evasion. If your HMRC compliance check is handled correctly by a specialist then you will have no fears about matters escalating. If your case is handled badly then the chances of your HMRC compliance check aggravating into something more serious increase markedly.
WHY SHOULD ADMIRAL TAX HANDLE MY HMRC COMPLIANCE CHECK FOR ME?
Quite simply because we are proven to produce the best results of any firm in this industry. Our independent, validated reviews on Google and Trust Pilot prove it. Our success across all types of tax investigations; including HMRC compliance checks is based on our approach and core values. Your HMRC compliance check will be handled by a former, senior HMRC investigator from start to finish. There are no inexperienced trainees here. You can read more about Dominic and his experience by visiting his LinkedIn profile.
These FAQs and answers are designed be a summary guide only. It is always better to call us for more detailed information.
HUMAN RIGHTS ACT
HMRC will always provide you with a booklet explaining your Human Rights during any tax investigation of compliance check.
Many people do not read this document. It is very important that you do so. It is very easy to be complacent and assume that the investigator will always treat you fairly and just naturally consider your rights during the HMRC compliance checks process. That is simply not the case; well at least not always. Mistakes are made; whether they be well-meaning or otherwise. HMRC can realistically ask for anything during a check of self-assessment tax return, but you should ask yourself some key questions:
Is the request being made for information or documents reasonable?
Do HMRC require this information in order to check my tax position
What are the potential implications of providing information or documents to HMRC that are not reasonably required when checking your self-assessment or tax position
Please always take professional advice from a tax investigation specialist before responding to any HMRC compliance check of information notice.
We use this term regularly throughout our various guides and articles. Furthermore; it is the terminology used by the department themselves as part of the HMRC compliance checks process.
It is key to consider this term both in its application its context. There are two factors to consider:
The legal obligation being placed on the individual or business to provide the information or documents being requested.
The necessity of the information or documents being requested to accurately check the tax position of the individual or business concerned.
You must always take advice before responding to any information notice issued as part of the HMRC compliance checks process. Mistakes can be costly and compromise your fundamental human rights.
HMRC COMPLIANCE CHECKS AND PROVIDING RECORDS
If you receive a notice informing you that HMRC wishes to check your tax position, you should seek specialist advice immediately. HMRC will ask for information and records as part of their check. It may be that the Inspector is stepping outside of HMRC’s statutory limitations or asking for information or documents that they are not reasonably entitled to. We have written further detailed articles on HMRC compliance checks which you may find useful.
Admiral Tax are HMRC compliance checks specialists. We have a former senior tax inspector; experienced in the entire compliance checks process, at your disposal. When you combine that internal departmental experience with a proven track record of success within private practice there is simply no better tax investigation service available in the UK.
Our customers agree. Please take some time to read our independent, validated reviews Google and Trust Pilot.
Please take some time to read through these additional pages which contain more important information and advice: