Tax Investigation Questions & Answers - Gilbert Tax

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Tax Investigation Common Questions

There are a number of questions we regularly come across relating to Inland Revenue Investigations. Here are a few of these and some guide answers. For a more detailed discussion of how the issues you have can be resolved please call us for a free initial discussion.

Why have HMRC decided to raise an Income Tax investigation into my tax affairs?

Despite a common misconception that the income tax investigation is a random enquiry nearly all Inland Revenue investigations are conducted because HMRC believe that there is something wrong with your tax affairs.

The process of selecting a case for an Inland Revenue Investigation is quite intense. HMRC have access to information from a number of sources, including banks, local authorities, newspapers, Yellow pages, local directories and of course the internet.

This sort of information will be gathered and stored. The advent of the computerised self assessment method of taxation launched in 1997 means that HMRC have information on their computer system relating to your business on a year on year basis and they are also (due to the trade classification codes that are allocated in every instance) able to compare not only your businesses year on year results but with those in your local area who operate in the same field of business.

In addition the encouragement of informants over the last few years has given HMRC an additional seam of information.

All of these factors are looked at and if HMRC hold some (supposedly) hard information from an informant and there are unexplained differences between your business and that of your local competitors then the likely hood of a full blown Inland Revenue Investigation increases.

This is not to say that the information that HMRC have is correct or that there assumptions are correct it is just to say that they believe that there is the distinct possibility that the accounts and tax returns are incorrect.

I have been Self Employed for a number of years but did not get round to registering tax. What can I do about this and will I face prosecution?

This is a more common problem that many people believe. There are many people who set out as self employed (especially in times of recession and redundancies) and find it a struggle to keep up with all of the paperwork. They often mean to register for tax and then do not quite get round to it as looking after a new business takes a lot of time and effort. Year two will then pass (with the best intentions of registering to pay tax but never quite getting round to it due to other pressures). The individual then often becomes frightened and believes that if they go to the tax man they will get thrown in jail. They then spend the next few years dreading the brown envelope from the tax man hitting their doorstep.

HMRC recognise that there are many people in what they call the Hidden Economy and have a number of "Hidden Economy Teams" around the country who's sole aim is to bring people back into the tax system.

Prosecutions for this type of offence are very rare and if a person voluntarily comes forward to HMRC to disclose untaxed income for a number of years HMRC normally will accept a settlement to include tax, interest and a penalty.

A problem for many individuals is that business records have not been maintained for the whole of the period. Although this makes the task of preparing the figures more difficult this is not impossible, especially if your advisor has experience of reconstructing past information and estimates.

The main cost, in most instances, of getting back into the system for tax purposes is a financial one. It can be done and once most people have started the process, as long as they have the right guidance and advice they often feel much happier.

Will I be allowed time to pay my tax bill?

The real answer to this is that sometimes HMRC will agree a time to pay arrangement with interest charged on the debt. They need to be satisfied that the individual or business cannot raise the funds from other sources and that there is a realistic chance that they will be able to meet any payments due under any time to pay agreement. This can often take significant amounts of time as HMRC are reluctant to agree time to pay if any other option is available and will want very detailed information about an individuals asset position and income and outgoings.

Will HMRC tell me why I am being subject to an Inland Revenue Investigation?

HMRC are very unlikely to reveal any information as to why they are enquiring into your tax affairs. They will occasionally give hints to specialist advisors and accountants and inferences can be taken from correspondence and meetings (if one is held). However,the official line is that they are not conducting and income tax investigation they are merely checking that your return is correct and most people subject to an Inland Revenue investigation will not be told the reason why that tax investigation commenced.

Do I need to attend meetings with HMRC?

The simple answer to this question is that there is no requirement in law for you to attend a meeting with HMRC. This does not mean that a meeting should not take place as long as you are prepared correctly and it is in the your interests to do so.

Do I need to provide my bank and credit card statements to HMRC?

This depends on various different circumstances. If HMRC have not found and errors in your accounts or tax returns then this can be strongly resisted. If there are errors established then HMRC have a much stronger case for requesting them as part of the Inland Revenue Enquiry.

To find out how we can help you sort out your tax investigation problem or to find out answers to questions which relate to you then contact us for a free initial discussion.

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