Tax investigations could cost you more  

Draft proposals by Her Majesty’s Revenue and Customs (HMRC) may mean increased costs for those under tax investigation

In a document recently put out for consultation, HMRC has outlined the ways it proposes to calculate penalties for those found guilty of tax evasion or who are subject to a tax investigation in the future. The role of the individual tax officer assumes far greater importance when it comes to deciding whether the omissions or mistakes made by the individual tax payer are “reasonable” or not; meaning that you have to argue your case very effectively in order to minimise any penalty that may be imposed on you.

The consultation defines four separate areas of disclosure that could be considered by the investigating tax officer – or eight areas, if you take into account that each disclosure is further split into “prompted” and “unprompted” with the unprompted versions attracting a higher percentage penalty:

Mistake or Misinterpretation

HMRC realises that some errors are just plain mistakes and should be treated as such. Innocent errors, omissions that are uncharacteristic of the taxpayer and taking a reasonable interpretation of the law, even when that interpretation proves to be wrong, are all likely to be seen as mistakes or misinterpretation.

Penalty: If the taxpayer or their adviser can explain the mistake or misinterpretation to HMRC’s satisfaction, there may be no penalty.

Failure to take reasonable care

This class of tax investigation covers those tax returns where carelessness has caused an underpayment of tax or omission of facts. If, rather than making a basic arithmetic error, the taxpayer has neglected to fill out part of the form, has failed to complete supplementary forms, or doesn’t notify HMRC of additional income, for example, HMRC may impose penalties using this definition.

Penalty: HMRC defines the penalty under this class as “moderate”. In fact, the tax penalty could be up to 30% of that lost tax revenue

Deliberate Understatement

HRMC wants to penalise deliberate tax evasion heavily, and tax investigation means that those who have knowingly and purposefully omitted information from their tax returns, whether individual or company, can expect to suffer financially. Intentionally altering numbers to your benefit, or failing to declare taxable income falls under this heading.

Penalty: You will have to pay back the tax lost due to the tax fraud plus interest, and a penalty of up to 70% of that lost tax revenue.

Deliberate Understatement and Concealment

The most severe class of penalties as a result of a tax investigation proposed by the consultation document is for those who are knowingly misleading when completing their tax returns and who then conceal or attempt to conceal the tax fraud. Covering up tax fraud, creating or destroying relevant documents, moving money to secret bank accounts and fixing false dates to contracts or invoices - whether at the time of completing your return, or at any time thereafter will be dealt with extremely seriously

Penalty: You will have to pay back the lost revenue and interest, plus a tax penalty of up to 100% of that lost revenue amount.

If these penalty arrangements are approved and new legislation is passed, you could find that a tax investigation will cost thousands of pounds more in penalties than current levels. That’s why you need to seek the advice of experienced, qualified and committed tax specialists such as Gilbert Tax. When it is introduced we will be able to guide you through the new penalty system and ensure that you are fairly treated by HMRC at every stage of the process.

If you have received notice from HMRC of a tax investigation or Civil Investigation of Fraud proceedings, call us for help and advice today. All enquiries are strictly confidential, so phone 0800 734 3333 or e-mail scott.gilbert@gilberttax.co.uk now

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