The natural reaction when faced with an HM Revenue and Customs tax investigation is to panic. Like that moment at school when you thought the head teacher was talking directly to you, the typical feeling is to want to run and hide. When contacted by HMRC the first thing to remember is that while an investigation may be the result of errors or discrepancies with your figures, it could also have been triggered randomly so you may not be at fault at all.
Whatever the reasons behind an investigation, it can be stressful and time consuming. Getting support can be a tortuous process, while HMRC claims to “have improved the range of channels through which businesses can get guidance and made it easier to get in touch,” it isn’t always a straight forward process.
Time pressured business owners can ill afford to sit on the phone for hours chasing the tax man, if the phones are answered at all. It has been reported that HMRC fails to answer a quarter of the 50 million calls it receives a year and at peak periods they fail to answer over 40 per cent of calls.
Having dedicated support from experienced professionals can offer piece of mind and help you navigate the tax minefield. Members of FSB benefit from automatic access to Tax Investigation Protection, which includes free, comprehensive tax advice and tax investigation insurance. This support makes the whole process easier, supporting your business and helping to minimise the financial impact of this sort of investigation. The costs involved with HMRC investigations can be crippling for a small business, as without cover adviser fees alone could cost £5,000.
Unless you are a tax professional, it is usually unwise to shun experienced assistance. Tax is a very complicated subject and you are likely to benefit greatly from the help of someone who is not only experienced in resolving tax investigations, but is also knowledgeable about operating practices within HMRC. HMRC themselves also recommend that small business owners who find themselves under investigation should get expert help to limit potential damages.
It is worth noting not all investigations are the same and enquiries fall into three categories; random, full and aspect investigations. Full investigations cover the whole of a tax return, random enquiries particularly target SMEs and aspect enquiries look at one or more areas of tax issues to be looked at again.
Top tips when faced by an investigation are as follows:
- Don’t be tempted to lie or destroy any documentation as it could lead to the taxman assuming you are trying to hide something. You may also need to obtain replacements for paperwork if there are any gaps in your records
- HMRC’s policy is to work collaboratively so work with the investigators to try and find a resolution
- Meet any deadlines set by HMRC and ensure you agree realistic timescales. Failure to deliver can lead to increased penalties and formal information demands.
- Don't take an investigation lightly. The Revenue has limited resources and so if it is focussing on you they may have a good reason
- If the Revenue provides meeting notes, check them thoroughly and inform the taxman of any required amendments
- In some cases, mediation or Alternative Dispute Resolution (ADR) may be needed to progress the process and to avoid a tribunal hearing
- If you know that there has been an error in your tax return, be honest. Full disclosure is vital if you want to avoid increased penalties and the potential for a criminal investigation
If you’d like to learn more about the benefits of FSB’s Tax Investigation Protection visit www.fsb.org.uk/join or call 0808 1688 486 to chat with one of our team quoting SME10. The service offers a tax advice helpline manned by Revenue-trained specialists, expert support, tax investigation insurance and cover up to £50,000 per individual claim.