The questions
The first letter from HM Revenue & Customs (HMRC) might be asking you questions to clarify something they do not understand or requesting information if you recently had a large amount of money coming into your bank account, then the bank may have alerted HMRC or you have recently inherited some money, then it would be requiring information around those funds.
It is important to have all your documents in one place relating to HMRC. Set up a folder that will hold all of the letters between you and them relating to the enquiry, including copies of any documents sent. Make sure to include any notes of telephone calls you have made, giving dates and the name of the HMRC officer you spoke to. Always send information by recorded delivery so you not only have proof of postage, but also of receipt by HMRC.
You should try to answer the questions they ask and provide the information they ask for, within a reasonable amount of time, say 2 to 3 weeks. In ordinary circumstances, HMRC will ask for information or documents that are reasonably required to allow them to check your tax position. You can question the HMRC officer dealing with the enquiry if you are not sure why they are asking a particular question or why they are asking for a particular document.
Sometimes, HMRC take the easy way out and will send you leaflets loaded with too much information. If you don’t understand it then ask them again in a letter.
HMRC have certain expectations which are included in their charter on gov.uk. You should cooperate with them and provide information and documents within the agreed timescales, although don’t agree with everything that HMRC says, nor does it mean that you should not challenge HMRC if you think they are incorrect or abusing their powers.
Incorrect Tax Return
Always take professional advice if you feel that the figures in your tax return may not be correct.
Tax Fraud
Tax fraud is an Intentional Act for your personal gain at the expense of HMRC. This can be in relation to either tax itself or tax credits. This relates to either not paying your tax bill, corporation tax, income tax, PAYE and NIC. Other taxes may also be under investigation.
Tax fraud is often related to your deliberate action which has bought a loss of tax. This may include:
- Taking illegal steps to reduce your tax bill, such as omitting, concealing or misrepresenting information in your tax return;
- Participating in the hidden economy and not declaring a whole source of income;
- Smuggling goods or generating repayments of tax fraudulently.
If HMRC have suggested that fraud may have been committed then always take advice.
In the interim, always speak to your accountant who should be able to help you.
The enquiry
When asked to provide a document or some information, then it is important to show send it. If you believe that there are errors in the return then let HMRC know what the errors are.
For example, you may have simply misread £1110 as £1101. Being honest and straightforward will help you get things resolved as soon as possible with the smallest penalty. HMRC give information about inaccuracy penalties in the factsheet CC/FS7a, including what you can do to reduce any penalty they charge.
I feel threatened by the tone of the letter issued to me. Can I complain?
They can write letters which can come across in a threatening way and they may quote certain legislation when they open an enquiry so that they are properly acting within the law. If the letter is demanding too much information in a short space of time, or comes across rude, then you can complain. Your professional advisor will be able to assist in how to deal with this.
HMRC can request information in relation to all assets which they think are owned by you. You should provide all the information and documents you have in order that you can prove the ownership of these assets. If you need more time to provide the documents then it is important to seek extra time. Do not go away on holiday/fail to respond if they have given you a timescale by which to reply.
HMRC can open an enquiry only when you have sent in a tax return. They have a leaflet for opening an enquiry on their website. Broadly, if you filed your tax return on time and made no changes to it, HMRC have 12 months from the date you filed the return in which to open an enquiry. Do not be afraid to challenge HMRC if you believe they are outside the time limit when an enquiry might be opened.
A HMRC check can take place before a tax return is lodged. So HMRC should be looking at current records rather than those that have been used to prepare a tax return that has already been lodged. HMRC use checks so that they can see how your business records are being kept and make suggestions to you about these, if necessary.
If you do not comply with the original request for information then you will be sent a formal request. There can be a penalty charge if you do not send in the information in the requested timescale. Take professional advice if you are unsure how to respond or have made a careless or deliberate error.
A meeting to resolve the enquiry can be a quicker way to deal with matters with HMRC. You can request a meeting if you feel that this course of action suits your circumstances. Attendance at the meeting will demonstrate to HMRC more cooperation and so may reduce any penalties that might be sought, but you do not have to attend.
It is imperative to have a third party at the meeting. Better to be safe than sorry! Always take notes.
The meeting can be held at a place of your choice rather than at HMRC offices.
You can write your own agenda and ask HMRC to do the same before the meeting. Be fully prepared! Ask how long HMRC think the meeting will take.
You have a right to privacy, so you do not have to discuss your tax affairs in front of anyone else unless you choose to do so.
During the meeting ask HMRC to set out their concerns at the beginning. This will help you decide whether you think their questions are reasonable.
Keep to the agenda.
If further matters are raised that do not arise from items already discussed, point this out and ask to get back to the agenda. If, on the other hand, it is something that you can deal with quickly, you may wish to answer, but point out that you are making an exception in answering a point that was not on the agenda. Otherwise you can ask that this matter (not on the agenda) be dealt with by correspondence.
Do not be afraid to say you cannot remember something – this can be as a result of stress at the meeting. You can send on more information later.
If you do not understand something then ask! Ask the officer to explain why they are requesting the information and the purpose of it.
You can ask for the meeting to be ended at any time or ask for a break. Do not allow yourself to be intimidated.
Ask for a copy of HMRC’s notes of the meeting. Check them carefully and compare them to your own. Ask for any mistakes or misinterpretations to be changed.
If you disagree with anything in the notes, put your concerns in writing. Also, if on reflection you think any of the information you gave in the meeting was incorrect or incomplete, this is your opportunity to put it right now. Do not delay in correcting any errors if the HMRC notes are delayed.
In a simple enquiry, you should have no qualms about signing notes of a meeting.
Soon after the meeting and following a possible short course of some more correspondence the enquiry can be closed. There may be some agreed adjustments to be made, but hopefully HMRC are satisfied. Remember you can ask for the enquiry to be closed at any time if you think that HMRC are drawing it out unnecessarily.
You should ask HMRC to confirm you have claimed all of the reliefs and allowances you are entitled to. If you do not agree with HMRC adjustments, they can then issue an assessment based on their figures. You will then have to appeal against that assessment to the First-tier Tribunal.
What if I do agree with the proposed schedule of adjustments?
If you agree to the adjustments then HMRC will issue you with a contract settlement agreement. It will show the tax payable and will ask you to make an offer to fully settle the tax together with any interest or penalties that might be charged. Normally HMRC will provide you with a guide of the sum that they expect and they should also issue you with a Penalty Explanation Letter. Although interest will be charged automatically, you should check the penalty charged carefully as you are still able to negotiate the penalty position.
I have been asked to sign a statement of assets and liabilities. Do I have to complete this?
A statement of assets and liabilities may have to be provided at a certain date, so that HMRC can evaluate the information. If you are married or in a civil partnership it normally includes those of your spouse or civil partner too.
Once you have agreed the figures in the settlement, you will be required to pay the tax 30 days later. If you are unable to pay the whole sum in that period then you tell HMRC as soon as possible. They may allow you up to six months to make the payment. Of course, the interest charge will increase slightly if you do not pay within 30 days.
Next Steps
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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