Should HMRC wish to enquire into someone’s tax affairs they will never make first contact by telephone, instead they will write initially. Although the addresses are now very much just post sorting offices there is much that can be gleaned from the department that is issuing the letter. Common departments are as follows:
In effect this is the most serious of HMRC departments who deal with civil matters. FIS deal with cases of serious suspected fraud under Code of Practice 9 as well as high end tax avoidance whether this be tax planning where HMRC believe it is tax avoidance and the tax is due or more recently where HMRC have received information as part of the Automatic Exchange of information arrangements with many overseas companies which indicates that the individual may have income or assets offshore which HMRC believe may need to be taxed in the UK.
These cases often involve people who are not UK domicile but may be UK resident. Usually FIS deal with matters where HMRC believe that there is significant tax at risk. Read more about the Fraud Investigation Service.
This is the normal day to day HMRC unit who deal with standard HMRC tax investigations. HMRC would not be writing to the person or company if they did not feel something was wrong but it is not thought to be as serious in terms of tax at risk as if it were being dealt with by Fraud Investigation Service.
These letters will usually open saying that they are enquiring under the relevant legislation (i.e. S9A TMA 1970 for individuals or say using HMRC discovery powers). Occasionally HMRC will be out of time to use the relevant legislation and it is worth testing.
These are like Individual and Small Business Compliance in the scope of the enquiries but tend to deal with high net worth individuals and owner managed businesses with a turnover of several million pounds.
This is a department created to deal with the information from the international automatic exchange of information which is not considered to be large enough to be dealt with by Fraud Investigation Service under Code of Practice 8 (or 9).
HMRC have taken a very formulaic view to some matters where they will issue a standard letter in the following areas:
As detailed earlier, HMRC are receiving significant information due to the international automatic exchange of information where HMRC are informed if an individual has offshore assets or investments.
HMRC (usually from the Risk and Intelligence Services Offshore department) have taken to issuing a standard letter explaining that they have information which shows that you may have received offshore income and inviting you to take part in the Worldwide Disclosure Facility. The letter also asks that you send back a certificate to state that you have declared all income and there is a prosecution warning on the letter. Our thoughts on this can be found in this article.
HMRC will send a standard letter (from the Individual and Small Business Compliance Unit with a subsection of Campaigns and Projects) stating that you are or have been a landlord and may have to pay tax on the income. The letter invites you to participate in the Let Property Campaign.
Unlike the Worldwide Disclosure Facility HMRC do not ask for a signed statement to say that all tax has been declared but they do invite you to either participate in the Let Property Campaign or phone them to say that there is nothing amiss. There is of course the usual threat of prosecution contained in the letter. Read more about the Let Property Campaign.
This relates to people who have taken part in tax planning which either involves some form of loan arrangement. Technically the opportunity to correct (as HMRC call it) has passed and HMRC have legislated to tax any loan where tax has not been paid on the amount earned in 2019/20 tax year under the loan charge provisions and they are contacting people about this. Read more about Disguised Remuneration.
This is another standard letter issued by HMRC but somewhat more serious than the ones relating to the Worldwide Disclosure Facility or the Let Property Campaign. These letters will always come from the Fraud Investigation Service (FIS) and open with an HMRC statement that they are writing as they suspect you have committed tax fraud. The letter encloses HMRC Code of Practice 9 which sets out how HMRC believe the matter should be dealt with along with details of the Contractual Disclosure Facility. Read more about Code of Practice 9.
Again, this is a letter issued by HMRC Fraud Investigation service and these are usually headed Code of Practice 8 Enquiry and states that HMRC are conducting an enquiry into your tax affairs under Code of Practice 8 which is defined as one where the Civil Investigation of Fraud Procedures are not used. The letter will enclose a brief description of why HMRC are starting an investigation.
These used to be mainly relating to tax planning arrangements but more recently they relate to offshore income and seek information about sources of income, worldwide business interests, purchase and sale of properties, how day to day expenditure is met and residence and domicile status. Read more about Code of Practice 8.
HMRC do carry out some unannounced visits but generally they will write to arrange a visit, and in most instances, these relate to either VAT or PAYE, CIS and Employment status. HMRC will probably state that this is just to check matters are correct and will often out-step the parameters of their powers as to what they should look at, who they can speak to and what they can ask for. Read more about HMRC visits.
If HMRC write to you and state that they want to visit or check something it means that they think that there is something wrong with your tax affairs. Whether this is right or wrong then the matter needs careful handling and how this is dealt with can mean a big difference to how the enquiry progresses.
HMRC will often ask for things that they are not entitled to and often this is provided and leads to further questions. Unfortunately, it is our experience that a significant number of HMRC employees work on the guilty until proven innocent basis and only look for evidence of guilt.
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