Given the huge costs of the COVID-19 pandemic, it comes as little surprise that HMRC tax investigations are on the rise. During the first quarter of 2021, the taxman opened 102,000 investigations. This is a staggering leap of 36%.
In addition, HMRC launched a new taskforce in April 2021. This brought in an additional 1,265 people who are dedicated to recovering tax from erroneous or fraudulent returns. Also, many HMRC staff who were temporarily deployed to handle COVID-19 schemes have returned to their normal jobs.
Even though the tax gap for 2020/21 was 5.1% – the second lowest percentage ever – HMRC is still determined to ramp up its compliance activity. This means that both businesses and individuals are more likely than ever to be the subject of HMRC tax investigations.
What kinds of HMRC tax investigations are there?
If you pay any kind of tax, it’s possible that HMRC will choose you for a tax compliance check. This could cover anything from your Self-Assessment Tax Return or Corporation Tax Return through to your VAT Return or PAYE records.
In many cases, an HMRC tax check will be completely random. However, the taxman does monitor returns for potential signs of tax evasion. These can include claims for large VAT refunds when your turnover is low, or declaring only a small amount of tax when your turnover is high.
Can I refuse a tax compliance check?
There are very few grounds for refusing an HMRC inspection or not sending any information it requests. Reasonable excuses include being seriously ill or a recent death of someone close to. If you don’t agree with what HMRC is checking, it’s possible to apply for alternative dispute resolution.
How can I protect myself against an HMRC tax investigation?
If HMRC decides to investigate your tax affairs, it can be an extremely expensive and time-consuming process. It can also be very stressful. If you have made tax errors in good faith, HMRC might decide they are ‘deliberate’ rather than ‘careless’. If this happens, you can end up paying larger penalties. You can even be named and shamed.
For these reasons, it’s a good idea to know that you can rely on a team of accountancy experts if your tax affairs are ever investigated. HMRC is more likely to come to a favourable resolution if you have experienced professionals fighting your corner.
However, fees can soon rack up during a tax investigation. To ensure you can afford them, we strongly recommend that you use our Tax Investigation Service. This can give you up to £100,000 in cover, protecting you against the costs of tax enquiries and disputes. Given the damage a tax investigation can wreak on your business, it’s a small price to pay to give you peace of mind.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration