Anyone whose financial affairs come under the scrutiny of the tax inspector needs to be well prepared for what is to follow. Usually, after
opening the ominous brown envelope, confusion is an all too common response.
These are our top tips for surviving a tax investigation:
- Stay calm – find an experienced adviser. Tax is complicated. You need someone on your side who knows how the tax man operates and has experience of resolving investigations. It is likely to be commercially beneficial in the long run.
- Seek clarification – if you don’t understand why HMRC are asking certain questions ‘keep asking’ for clarification. HMRC’s guidance encourages them to work in a collaborative way so that all parties work together in a non-confrontational way.
- Don’t over promise and under deliver – if you cannot meet a deadline speak to HMRC, explain the situation and agree a revised timescale. Missing a deadline can increase penalties and lead to formal demands for additional information. Also, if you need time to pay your tax bill, let HMRC know straight away and be realistic about when you can afford to pay. Missing a payment deadline can have serious consequences.
- Be honest – if there is something ‘wrong’ with your tax return, tell HMRC as soon as possible. Making a full disclosure of all the relevant facts and explaining why/how things went wrong is essential. Failure to do so can lead to additional penalties (and possibly a criminal investigation) when the full story emerges.
- Prepare thoroughly for meetings – ask for an agenda and prepare carefully. Obtain relevant documents. Be patient and do not be afraid to ask for clarification if you don’t understand. Check any meeting notes that HMRC provide to make sure there are no misunderstandings. HMRC will rely on these notes if the matter goes to court or Tribunal.
- Do not destroy documentation – getting rid of or destroying evidence may lead HMRC to assume that you have something to hide. If you didn’t keep records be prepared to get replacements (e.g bank statements) and work with your adviser to make reasonable estimates/assumptions to fill any gaps.
- Be one step ahead – if you think ‘HMRC are bound to ask me about x next’ be prepared to answer that question and provide supporting documentation in your response. Being helpful and giving HMRC access to records can reduce penalties, as will making a full disclosure and meeting deadlines.
And finally, never assume anything – HMRC holds vast amounts of data and can obtain more from third parties in Britain and worldwide. It focuses its limited resources so if HMRC is investigating you, it is for a reason. If an error is found on your tax return don’t assume that is all HMRC is interested in; HMRC will want to check if the error has occurred in other years.
Our tax experts are on hand if you’d like to talk through how Bedrock may be able to assist you and your accountant in managing any interest from HMRC in your tax affairs.
